By Radarr Africa
Nigeria’s total money supply dropped again in May 2025, marking the second decline this year, according to new data released by the Central Bank of Nigeria (CBN). The figure for broad money supply (M3) stood at ₦119.01 trillion in May, a slight drop of ₦292.75 billion or 0.25 percent compared to ₦119.30 trillion recorded in April.
This recent dip comes after a similar decline earlier in February when money supply fell to ₦110.32 trillion from ₦110.94 trillion in January. Although the May contraction is modest, it reflects ongoing adjustments in Nigeria’s monetary policy, as the CBN intensifies efforts to manage excess liquidity and curb inflation.
Despite the month-on-month drop, Nigeria’s overall money supply remains close to record levels. Year-on-year, the data shows an increase of ₦19.77 trillion or 19.9 percent when compared to ₦99.24 trillion in May 2024. This sharp rise highlights the impact of past liquidity surges and continued monetary expansion over the past 12 months.
A deeper look into the components of broad money supply reveals a shift in liquidity sources. In April, Nigeria’s net foreign assets stood at ₦49.87 trillion, but this fell sharply by ₦4.05 trillion or 8.1 percent to ₦45.81 trillion in May. The decline signals a weakening of Nigeria’s external reserves, possibly due to a dip in foreign exchange inflows or changes in reserve management.
In contrast, net domestic assets increased significantly. They rose by ₦3.76 trillion, from ₦69.43 trillion in April to ₦73.19 trillion in May, representing a 5.4 percent growth. This surge helped offset the impact of the drop in external assets and prevented a deeper fall in total money supply. The figures point to a delicate balancing act by the CBN as it manages liquidity levels while maintaining exchange rate stability.
Other monetary indicators also declined slightly. Nigeria’s M2 money supply—which excludes certain institutional holdings—fell to ₦118.99 trillion in May from ₦119.28 trillion in April, down by ₦283 billion or 0.24 percent. This mirrors the trend in M3 and indicates a broader tightening in financial conditions.
Narrow money (M1), which consists of the most liquid forms of cash like currency in circulation and demand deposits, also saw a significant contraction. M1 fell from ₦41.00 trillion in April to ₦40.38 trillion in May, a drop of ₦624.5 billion or 1.5 percent. The reduction may be linked to seasonal spending patterns, reduced government spending, or higher interest rates that discouraged immediate consumption.
Despite the drop in May, M1 remains substantially higher than last year’s figure. In May 2024, narrow money was ₦33.38 trillion, meaning there has been a 20.9 percent annual increase. This shows that liquidity in the economy remains strong historically, even with current contraction efforts.
A broader year-on-year analysis shows the total money supply rose by almost ₦20 trillion between May 2024 and May 2025. This increase was driven mainly by a sharp rise in Nigeria’s foreign assets, which grew from ₦15.34 trillion to ₦45.81 trillion—an impressive ₦30.47 trillion jump or 198 percent. The accumulation likely reflects higher oil revenues, successful debt issuances, and improved access to international financing following key economic reforms.
However, domestic liquidity has declined over the same period. Net domestic assets dropped from ₦83.90 trillion in May 2024 to ₦73.19 trillion in May 2025, showing a reduction of ₦10.71 trillion or 12.8 percent. This tightening could be a result of reduced credit growth, restrained government borrowing, or the CBN’s net claims on the economy being reined in as part of efforts to control inflation.
The recent trend is consistent with the CBN’s monetary tightening strategy. High interest rates through a tightened Monetary Policy Rate (MPR) and frequent Open Market Operations (OMO) have been used to reduce liquidity. These actions are now reflecting in monetary data, especially the drop in the most liquid components like M1, which points to early success in curbing inflationary pressure.
Analysts say that while liquidity contraction may impact economic growth in the short term, it is a necessary step to stabilise the naira, reduce inflation, and restore confidence in the monetary system. The coming months will reveal whether the CBN can maintain this delicate balance without pushing the economy into further stress.