The members of the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) have proposed a decrease in the growth of the money supply to strengthen monetary reserves and enhance the economy’s ability to withstand potential future disruptions.
The recommendation follows a revelation by the CBN that the currency outside the banking system had increased to N1.4 trillion in March. This showed a 66% increase from the N843 billion in February.
The rise in circulation is a direct result of the Supreme Court order reinstating the old N200, N500, and N1,000 banknotes until December 31, 2023, which has had a notable impact.
Additionally, the committee acknowledged that exercising control over the expansion of money supply would effectively curb the inflationary pressures that could arise from the recent surge in currency-in-circulation.
In his personal remarks contained in the Central Bank of Nigeria, CBN, Communique for the MPC meeting in May, a member and Deputy Governor, Corporate Services Directorate, CBN, Mr. Adamu Edward, said: “Growth in money supply is yet to be adequately curtailed, at least to the benchmarks for the year.”
“Among other benefits, slowing the growth of money supply at this time should contribute to rebuilding monetary buffers to improve the economy’s resilience against future shocks,” he said.
Adamu Edward stated that despite its potential impact on inflation, he considers the removal of subsidy on Premium Motor Spirit (PMS) to be appropriate, as it is expected to decrease the requirement for future monetary accommodation substantially.
“It is in this context that despite posing a risk to inflation, I see the removal of subsidy on PMS as appropriate as it should significantly reduce the need for monetary accommodation going forward.”
On his part, Mr. Momodu Omamegbe, a member, and Head of Strategy, Securities and Exchange Commission, SEC, who highlighted the importance of prudently managing the money supply within the economy, said, “meticulous management of the money supply is of paramount importance to forestall the recent increase in currency in circulation (CIC) from fuelling inflationary pressures.”
Omamegbe emphasised the significance of the central bank’s commitment to controlling inflation, considering the time delays in policy transmission and implementing effective currency management strategies. By doing so, the bank can substantially contribute to achieving price stability, fostering sustainable economic growth, and safeguarding the nation’s economic prosperity.
According to him, “In essence, by remaining steadfast in its pursuit of inflation control, factoring in the lags in policy transmission, and implementing astute currency management strategies, the Bank can contribute significantly to the attainment of price stability, the stimulation of sustainable economic growth, and the preservation of the nation’s economic prosperity.”
According to the Money and Credit Statistics report released by the CBN for May 2023, there was an 8.7% month-on-month increase in currency in circulation (CIC).
The CIC reached N2.5 trillion, rising from N2.3 trillion in May, continuing the upward trend that began in March 2023 when it was recorded at N1.6 trillion.
Recall that in a recent assessment of global currencies, Nigeria’s currency, the Naira, has shown signs of progress. The latest ranking by Steve H. Hanke, an esteemed professor of Applied Economics, indicates that the Naira currently occupies the 21st position among the worst-performing currencies worldwide as of June 2023. This represents a noteworthy advancement from its previous standing of 15th by the conclusion of December 2022.
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