Market News

BY   Chima Nwokoji

Nigeria’s interest rates have remained firmly in double digits, despite a sharp rise in money supply to 122.95 trillion in November 2025, underscoring the Central Bank of Nigeria’s (CBN) tight monetary stance even as liquidity in the financial system expands.

Traditionally, an increase in money supply is expected to lower interest rates, stimulate borrowing, and boost investment and consumer spending. However, current economic conditions show a different picture, with the apex bank prioritising inflation control and exchange rate stability over rapid credit expansion.

Latest CBN data show that broad money supply (M3) rose from N119.04 trillion in October 2025 to N122.95 trillion in November, indicating that more cash and credit are circulating in the economy. The development suggests a banking system that remains flush with liquidity despite elevated policy rates. “Liquidity conditions in the system remain accommodative even as the apex bank maintains elevated policy rates,” the CBN noted, highlighting the delicate balance between supporting growth and containing inflation.

The increase in money supply was driven by both domestic and external factors. Net domestic assets (NDA) grew to N85.57 trillion in November from N84.23 trillion in October, reflecting increased lending to the government and the private sector. Analysts say this often points to higher government borrowing, improved credit to businesses and households, or a renewed focus by banks on domestic lending opportunities.

At the same time, net foreign assets (NFA) jumped to N37.38 trillion from N34.80 trillion, more than doubling from N17.35 trillion recorded a year earlier. This signals stronger foreign exchange inflows and an improvement in Nigeria’s external reserve position, giving the CBN greater capacity to support the naira and manage market volatility.

Other measures of liquidity followed a similar upward trend. M2, which covers cash and short-term deposits, rose to N122.94 trillion, while M1, representing cash and transactional balances, increased to N40.53 trillion from N39.35 trillion. This suggests that more money is actively circulating in daily economic transactions.

Despite the growing liquidity, interest rates remain high. In September 2025, the Monetary Policy Committee (MPC) cut the Monetary Policy Rate (MPR) by 50 basis points to 27 per cent, citing easing inflationary pressures and improved foreign exchange conditions. However, by November, the MPC retained the rate at 27 per cent, signaling caution as money supply continued to expand. The CBN also maintained a Cash Reserve Ratio of 45 per cent for commercial banks, a Liquidity Ratio of 30 per cent, and a tight standing facility corridor, reinforcing its commitment to monetary discipline.

Meanwhile, Nigeria’s economic activity showed strong momentum at the end of 2025. The Composite Purchasing Managers’ Index (PMI) rose to 57.6 points in December, the highest level in nearly five years, pointing to broad-based expansion across key sectors. Agriculture led the growth with a PMI of 58.5 points, followed by industry at 57.0 points, while the services sector remained in expansionary territory at 51.9 points.

Analysts say the coexistence of strong economic growth, rising liquidity, and high interest rates reflects a complex policy environment. While increased money supply supports lending and business activity, excessive liquidity could fuel inflation and put pressure on the exchange rate if not carefully managed.

“The simultaneous growth in domestic and foreign assets shows that Nigeria’s liquidity is being boosted both by local lending and improved external conditions,” an economist said. “But the CBN must continue to regulate the flow to avoid overheating the economy.”

From a market perspective, Nigeria’s financial system is currently awash with cash, aiding recovery and expansion. However, sustaining growth without triggering inflation remains the central challenge for monetary authorities in the months ahead.