The total stock of money in circulation declined at the end of January, falling by 7.9% month-on month from N2.4 trillion in December1. Although the current stock of currency in circulation is 5% higher than the corresponding year, the decline in currency-in-circulation stands to reduce the current levels of inflation2. This potential impact is in line with the expected outcome of the newly increased Cash Reserve Ratio (CRR) from 22.5% to 27.5% which aims to address monetary-driven inflation. The reduction in currency in circulation amid the increase in CRR, which in itself may constrain banks’ ability to create money through lending, may further increase interest rate and cost of doing business. However, the Central Bank of Nigeria’s stance on increasing the loan to deposit ratio from 60% to 65%, which hitherto has recorded some successes in increasing credit to private sector, may continue to further push market interest rates downwards or at least tame the negative impact of increased CRR.
Macroeconomic Report & Economic Updates
March 6, 2020
Nigeria Economic Update (Issue 7)
Provisional Monetary statistics by the CBN show an increase in currency in circulation a portion of overall money supply. Specifically, currency in circulation rose (Month-on-Month) by 14.2 percent to N2.2 million in December 2016 the highest Month-on-Month increase recorded for the year 2016. The rise in currency- outside-bank may be attributed to the growing demand for cash balances for spending activities during the festive period. This development would largely compound the liquidity problem associated with TSA implementation and ongoing CBN monetary tightening as deposit money banks might be cash-strapped. Going forward, efforts should be geared towards intensifying initiatives that promote a cashless economy that encourages cashless transactions.
Recently released report by Nigeria Extractive Industries Transparency Initiative (NEITI)shows a significant decline in revenue allocation across the three tiers of government for 2016H1 (January to June). Specifically, total disbursements dropped (year-on-year) by 30.45 percent to N2.01 trillion in 2016H1. The drop in revenue allocations is accountable to the decline in both oil and non-oil revenue. While lower oil revenue was triggered by the drastic fall in oil price and production in 2016H1, lower non-oil revenue was driven by the decline in tax revenue occasioned by contraction in economic activities in the review half-year.