Broad liquidity expansion raises questions on inflation and exchange rate management
Nigeria’s broad money supply (M3) surged to ₦122.95 trillion in November 2025, up from ₦119.04 trillion in October, reflecting continued expansion in system liquidity despite the Central Bank of Nigeria’s (CBN) tight monetary stance.
The latest data from the apex bank show that liquidity in the banking system remains accommodative, even as policy rates remain elevated, highlighting the delicate balance the CBN faces in supporting economic growth while keeping inflation and currency stability in check.
Drivers of the Money Supply Growth
The increase in M3, which represents the broadest measure of money in circulation, was driven by both domestic and foreign asset growth:
- Net Domestic Assets (NDA) rose to ₦85.57 trillion in November from ₦84.23 trillion in October, reflecting higher banking sector lending to both the government and private sector.
- Net Foreign Assets (NFA) jumped to ₦37.38 trillion from ₦34.80 trillion, more than doubling year-on-year from ₦17.35 trillion in November 2024, signaling stronger foreign inflows and improved external reserves.
Other monetary aggregates followed a similar trend: M2 increased to ₦122.94 trillion from ₦119.03 trillion, while M1 rose to ₦40.53 trillion from ₦39.35 trillion, indicating higher transactional balances circulating in the economy.
Monetary Policy Context
The growth comes in the context of recent CBN policy adjustments:
- In September 2025, the Monetary Policy Committee (MPC) cut the Monetary Policy Rate (MPR) by 50 basis points to 27%, in response to easing inflation and stronger forex conditions.
- By November 2025, the MPC held the MPR at 27%, signaling caution as liquidity continued to rise.
The rise in domestic and foreign assets suggests that credit expansion, government borrowing, and stronger external inflows are jointly driving the surge in liquidity. While this supports economic activity and lending, it also raises the risk of excess money in circulation, which could pressure inflation and exchange rates if not carefully managed.
Implications for the Economy
The simultaneous growth in domestic and foreign assets points to a recovery in economic activity, but the CBN faces the challenge of preventing this liquidity from undermining recent disinflation gains.
Maintaining a cautious stance on policy rates, the apex bank is signaling its commitment to balancing credit expansion with price and currency stability, a critical move as Nigeria heads into 2026.
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