Nigeria’s money supply fell to a four-month low in January as the Central Bank of Nigeria (CBN) intensified liquidity control measures aimed at curbing inflationary pressure and stabilising financial markets, underscoring the depth of the monetary tightening cycle that has defined policy over the past year.
Data released by the CBN showed that broad money supply (M3) declined by 0.84 percent month-on-month to N123.36 trillion in January 2026, from N124.41 trillion in December 2025. The contraction marks the weakest level in four months, reflecting the impact of aggressive liquidity sterilisation at the start of the year. The last money supply drop was in September 2025 when it declined to N117.78 trillion from N119.69 trillion in the preceding month.
On a year-on-year basis, however, money supply expanded by 11.04 percent from N111.10 trillion recorded in January 2025, indicating that annual growth remains high despite the recent moderation.
Analysts at the Financial Market Dealers Association (FMDA) Research attributed the tightening liquidity conditions to significant cash withdrawals from the banking system by the apex bank. According to their analysis, the Central Bank mopped up approximately N13.41 trillion in January 2026, sharply higher than the N2.77 trillion absorbed during the same period a year earlier. The scale of the sterilisation exercise contributed to the mild contraction observed in both money supply and reserve balances in January.
Currency in circulation posted a marginal monthly decline of 0.003 percent to N5.731 trillion, down from N5.733 trillion in December. Compared with the same period last year, currency in circulation rose by 9.47 percent from N5.235 trillion in January 2025, highlighting steady cash growth over the longer term despite month-on-month moderation.
Money held outside the banking system recorded a more pronounced monthly drop, falling by 3.66 percent to N5.210 trillion in January from N5.408 trillion in December. On a year-on-year basis, money outside banks increased by 9.99 percent from N4.737 trillion in January 2025, suggesting that while informal cash holdings remain elevated compared to last year, recent liquidity controls are beginning to bite.
The January contraction follows a broader deceleration in money supply growth observed late last year. Nigeria’s money supply growth slowed to a five-year low of 12.83 percent in November 2025 after the Central Bank intensified efforts to rein in excess liquidity as part of its inflation-fighting strategy.
Over the past year, the Central Bank has significantly scaled up its liquidity mop-up operations, draining surplus funds that commercial banks have routinely deposited through the Standing Deposit Facility. Open Market Operations have been at the forefront of this effort.
CBN data showed that OMO sales surged by 1,607.03 percent year-on-year to N8.53 trillion in January 2026, representing an increase of more than N8 trillion compared with N500 billion recorded in January 2025. The sharp expansion in OMO issuance reflects the regulator’s increasingly assertive stance in managing system liquidity.
Ayodeji Ebo, managing director and chief business officer at Optimus by Afrinvest, said earlier that the dramatic rise in OMO sales underscores the Central Bank’s resolve to manage excess cash, contain inflation and support exchange rate stability.
He noted that elevated OMO issuances tend to attract foreign portfolio inflows seeking higher yields, while also influencing domestic interest rates and borrowing costs. “It signals a tightening monetary stance aimed at stabilising the economy, although its effectiveness still depends on broader fiscal policies and external conditions,” Ebo said.
Credit conditions showed signs of moderation alongside the liquidity squeeze. Credit to government edged down by 0.09 percent month-on-month to N34.19 trillion in January from N34.221 trillion in December 2025. On an annual basis, however, government credit expanded sharply by 36.59 percent from N25.03 trillion in January 2025.
Private sector credit also weakened modestly, declining by 0.78 percent month-on-month to N75.241 trillion in January from N75.834 trillion in December. Year-on-year, private sector credit grew by 2.76 percent, though off a higher base of N77.377 trillion recorded in January 2025, signalling subdued lending momentum amid tight financial conditions.
FMDA analysts said the transmission of the Monetary Policy Committee’s February 24, 2026 decision to reduce the Monetary Policy Rate from 27 percent to 26.5 percent could begin to influence credit conditions and lending activity in the coming months, particularly from March onward. As banks adjust to slightly lower funding costs and evolving liquidity dynamics, a gradual pickup in private sector credit growth may emerge.
They cautioned, however, that the pace of any recovery in lending will depend largely on fiscal borrowing needs and overall system liquidity, suggesting that while monetary easing has tentatively begun, policy conditions remain tight and carefully calibrated to balance inflation control with economic growth.
