Nigeria’s financial system recorded notable shifts in August 2025, with broad money (M3) expanding even as government borrowing dropped sharply by 25.74% year-on-year.
According to the Central Bank of Nigeria (CBN), M3 rose to N119.52 trillion, largely driven by stronger quasi-money balances and increased foreign assets, signaling growing liquidity in the system.
The growth in money supply was powered by quasi-money, which surged to N80.21 trillion as households and firms increasingly sought interest-bearing deposits amid persistent inflation and tighter monetary conditions.
Meanwhile, narrow money (M1) comprising cash in circulation and demand deposits remained relatively smaller at N39.30 trillion, indicating a preference for safer, bank-held funds rather than physical currency.
Government borrowing declines sharply
Credit to government contracted to N23.13 trillion, reflecting a 25.74% YoY decline in government borrowing. The contraction suggests that banks and investors are directing less liquidity toward deficit financing, while credit to the private sector remained modest at N75.83 trillion.
This trend highlights a key dynamic: although liquidity is expanding, it is not fully translating into broader private-sector lending or economic investment.
Economic consequences
The combination of rising liquidity and falling government borrowing produces mixed effects on the economy:
- Limited private-sector lending: Although liquidity is high, banks are cautious, and credit to the private sector remains modest at N75.83 trillion. This restricts access to loans for businesses, slowing job creation and private investment.
- Shift to safer assets: The surge in quasi-money shows that households and firms prefer interest-bearing deposits over spending or investing, which can dampen consumption-driven growth.
- Weaker fiscal stimulus: Lower government borrowing implies reduced deficit financing and potentially slower implementation of public projects that support economic activity.
- Reliance on external inflows: Rising net foreign assets (NFA at N40.94 trillion) reinforce liquidity in the system, but foreign reserves do not always translate into domestic credit, leaving productive sectors underfunded.
Money supply dynamics and credit and asset flows
Broad money (M3) stood at N119.52 trillion in August 2025, largely driven by quasi-money, which rose to N80.21 trillion as households and firms preferred interest-bearing deposits amid inflationary pressures.
Narrow money (M1), comprising currency outside banks and demand deposits, was much smaller at N39.30 trillion, with demand deposits falling 1.63% to N34.85 trillion and currency outside banks declining 0.92% to N4.45 trillion, though still up 15.12% YoY.
This pattern shows that a larger share of liquidity is held in bank deposits rather than in physical cash.
On the credit side, net domestic assets were N78.58 trillion, while net domestic credit totaled N98.97 trillion. The gap reflects “other assets net” adjustments and sterilization measures. Credit to government declined sharply to N23.13 trillion, reflecting a 25.74% YoY drop, while credit to the private sector remained relatively steady at N75.83 trillion. Net foreign assets rose to N40.94 trillion, reinforcing liquidity from external inflows such as oil earnings and remittances.
Base money (money in circulation plus bank reserves) stood at N35.68 trillion, with bank reserves at N30.76 trillion and currency in circulation at N4.92 trillion. The balance suggests that liquidity growth is increasingly concentrated in bank balances, consistent with efforts to promote a cash-lite economy.
Latest monetary policy signals
At its September 2025 Monetary Policy Committee (MPC) meeting, the CBN revised the CRR for commercial banks downward to 45% from 50%, while retaining 16% for merchant banks.
More significantly, the apex bank introduced a 75% CRR on non-TSA (non-Treasury Single Account) public sector deposits, a move aimed at sterilizing excess liquidity tied to government-linked funds sitting in the banking system.
In a further bid to refine its liquidity management tools, the CBN adjusted the Standing Facilities corridor around the Monetary Policy Rate (MPR) to +250/-250 basis points, replacing the asymmetric band with a more balanced one. The adjustment made overnight liquidity operations more predictable, and it encourages active liquidity management and greater interbank participation, since idle reserves earn less and borrowing costs are lower.
With the narrowing of the corridor, the CBN may resort to higher bill issuance if the new monetary tools result in excess liquidity pressures.
Meanwhile, the CBN scaled back on its open market operations:
- CBN Bills issuance dropped sharply by 14.01% over the two-month period and 13.33% YoY to N9.29 billion, suggesting a more cautious approach to liquidity sterilization.
- Meanwhile, special intervention reserves were unchanged at N284.36 billion, underscoring policy continuity in targeted credit schemes such as agriculture and small business support.
Why it matters
Headline growth in money supply signals that liquidity is increasing, but the decline in government borrowing shows that these funds are not automatically flowing into productive sectors. Businesses face tighter credit, household consumption remains restrained, and fiscal stimulus from government spending is limited. For the broader economy, this means that while liquidity is plentiful on paper, the impact on jobs, investment, and living standards remains muted.
In summary, Nigeria’s financial system is expanding in money terms, but the contraction in government borrowing alongside cautious private-sector credit channels means that liquidity growth may not yet translate into broad economic expansion.