Members of the Monetary Policy Committee of the Central Bank of Nigeria have identified excess cash in circulation as the primary driver of accelerating inflation in the country. This revelation came during the February MPC meeting, as reported on the apex bank’s website.
Pauline Odinkemelu, a member of the MPC, highlighted the significant increase in money supply, with M3 growing by 18.25% to N93.72tn by the end of January 2024. The surge in broad money supply was attributed to the rise in other deposits, transferable deposits, and securities other than shares. Odinkemelu expressed concerns about the impact of the growth in M1 on inflationary pressures, signaling excess liquidity in the system.
In response to these challenges, Odinkemelu advocated for a 300 basis points increase in the Monetary Policy Rate (MPR) from 18.75% to 21.75% to address the rising inflationary pressures. The statistics from the CBN revealed a significant increase in currency in circulation, with a notable surge in currency outside banks, further exacerbating inflation within the country.
Mustapha Akinkunmi, another MPC member, highlighted the decrease in reserve money to N24.2tn by the end of January 2024, coupled with the increase in broad money supply to N93.7tn, contributing to the inflationary pressures. Lamido Yuguda, the Director General of the Securities and Exchange Commission and an MPC member, emphasized the impact of loose monetary policy in 2023, leading to excess liquidity in the system.
Yuguda pointed out the significant increase in broad money from NGN 52.2tn in December 2022 to N78.7tn in December 2023, driven by a rise in net domestic assets. This surge in credit creation further added to the excess liquidity in the system, necessitating a reevaluation of monetary policy measures to address the inflationary challenges.
The discussions at the MPC meeting underscored the urgent need to address the excess cash in circulation and its impact on inflation, highlighting the importance of implementing appropriate monetary policy measures to stabilize the economy.
