Nigeria’s money supply fell to a four-month low in January as the Central Bank of Nigeria (CBN) intensified aggressive liquidity mop-ups across the banking system, underscoring the scale of monetary tightening deployed to curb inflation and stabilise the naira.
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 decline reflects a sweeping liquidity sterilisation drive that saw the apex bank withdraw more than N13 trillion from the financial system 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.
The tightening liquidity environment highlights the delicate balancing act facing policymakers. While the Monetary Policy Committee recently began easing interest rates after months of aggressive hikes, the Central Bank continues to drain excess cash from the banking system to prevent renewed inflationary pressure and speculative attacks on the naira.
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.
The apex bank intensified liquidity mop-ups at the start of the year, withdrawing more than N13 trillion from the financial system as policymakers battle inflation and seek to stabilise the naira despite early signs of monetary easing.
Ayodele Akinwunmi, Chief Economist at United Capital Plc, said liquidity conditions dropped in January 2026 driven mainly by a fall in net foreign assets from N31.51trillion in December 2025 to N29.61trillion in January 2026.
“This is a deliberate policy stance by the Central Bank of Nigeria (CBN) to mop-up excess liquidity from the financial system to ensure price stability. The drop in money supply, currency in circulation, and currency outside banks mean that cash was removed from the banking system. The implication is drop in inflationary pressures, stabilisation of the value of the Naira and a reduction in the excess liquidity in the banking system that is not backed by productive lending,” he said.
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Akinwunmi added that the strategy will also reduce speculative attack on the Naira which will lead to foreign exchange stability. “Overall, Nigerian economic growth rate will accelerate in the short to medium term,” he said.
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.
For Adebowale Funmi, head of research at Parthian Securities, the decline in money supply and currency outside banks in January reflects the impact of the Central Bank of Nigeria’s revised cash management policies, which took effect on January 1, 2026.
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The policy introduced a cumulative weekly withdrawal limit of N500,000 for individuals and N5 million for corporates, with additional charges on withdrawals above these thresholds. “These measures are designed to discourage excessive cash usage and accelerate the adoption of electronic payment channels,”she said.
In addition, she explained that liquidity conditions were further tightened by the Central Bank’s open market operations, which recorded a net OMO bill issuance of about N2.91 trillion in January. This effectively mopped up liquidity from the financial system.
She said, “Combined, these factors contributed to the decline in currency outside banks and the slight contraction in money supply. From a macroeconomic perspective, the moderation in liquidity could help support the ongoing disinflation trend and strengthen monetary policy transmission.”
Credit conditions showed signs of moderation alongside the liquidity squeeze. Credit to the 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.
Tighter liquidity typically raises funding costs for banks and businesses, limiting credit expansion in the short term but helping stabilise exchange rates and moderate inflation over time.
FMDA analysts said the transmission of the Monetary Policy Committee’s February 24, 2026 decision to cut the Monetary Policy Rate from 27 percent to 26.5 percent could begin to influence lending conditions in the coming months. As banks gradually adjust to lower funding costs and evolving liquidity dynamics, private sector credit growth may begin to recover.
However, analysts caution that the pace of recovery will depend heavily on fiscal borrowing needs and the Central Bank’s continued liquidity management strategy, suggesting monetary conditions may remain tight even as policymakers cautiously pivot toward easing.
