Nigeria's Money Supply Hits ₦119 Trillion: What the CBN Rate Cut Means for Liquidity

In a significant development for Nigeria’s financial landscape, the nation’s broad money supply (M3) surged to an unprecedented ₦119.04 trillion in October 2025. This expansion follows a crucial decision by the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) to cut the Monetary Policy Rate (MPR) by 50 basis points to 27% in September—the first such rate cut since 2020. The latest figures released by the CBN’s money and credit statistics data show a month-on-month rise of 1.06%, or ₦1.25 trillion, from the ₦117.78 trillion recorded in September 2025.

This sustained growth in money supply, which represents a substantial 10.22% year-on-year increase from October 2024, signals a considerable injection of liquidity into the financial system. For economists, investors, and policymakers, this expansion is a key indicator of the credit and spending capacity within the economy, particularly as the CBN attempts to execute a delicate policy balancing act: easing monetary conditions to spur economic activity without inadvertently reigniting the inflationary pressures it has worked so hard to contain.

Unpacking M3: The Widest Measure of Economic Liquidity

Broad money supply, or M3, is the most comprehensive measure of the stock of money circulating within an economy. It goes beyond the most liquid forms of currency to capture the full spectrum of financial instruments available for immediate spending, short-term investment, and savings. M3 is composed of:

Narrow Money (M1): Currency held by the public (cash) and demand deposits (current accounts).

Quasi Money: Time and savings deposits, which are slightly less liquid but easily converted to cash.

Other Liquid Financial Assets: Broader financial instruments held by the public.

The October increase in this M3 aggregate confirms that there is a larger volume of cash and near-cash instruments available to the public. This rise in liquidity is the fundamental context against which the CBN is forced to set its monetary policy, making the October data a critical barometer of the efficacy and risks associated with its September rate cut decision.

The Driving Force: A Surge in Net Domestic Assets (NDA)

The primary engine behind October’s massive money supply expansion was a dramatic increase in Net Domestic Assets (NDA).

NDA skyrocketed from ₦76.12 trillion in September to ₦84.23 trillion in October—an astounding monthly jump of ₦8.11 trillion, or 10.65%. This surge is one of the strongest recorded in 2025 and is a crucial indicator of domestic liquidity dynamics.

Net Domestic Assets fundamentally measure the banking sector's claims on domestic entities, which primarily include the government and the private sector. A sharp rise in NDA almost invariably reflects one or a combination of the following factors:

Increased Government Borrowing: Higher domestic borrowing by the Federal Government draws liquidity from the financial system and expands the banking sector's claims on the state, increasing NDA.

Credit Expansion: A robust increase in credit extended by banks to businesses and households signals increased economic confidence and transactional velocity, directly fueling the growth of domestic assets.

Balance Sheet Repositioning: Banks might be shifting their balance sheet composition to favor more domestic assets over foreign ones.

This powerful domestic expansion was so strong that it effectively negated a significant contraction in Net Foreign Assets (NFA). NFA declined sharply from ₦41.66 trillion in September to ₦34.80 trillion in October, dropping by ₦6.86 trillion (16.45%) month-on-month. While NFA remains significantly higher year-on-year (a 67.41% increase from October 2024), the monthly fall suggests renewed external vulnerability or significant outflows from foreign currency reserves, which the expanding NDA was powerful enough to counteract in the overall M3 calculation.

Policy Implications: Tightrope Walk for the CBN

The data places the CBN in a highly complex position. The September rate cut, the first in years, was predicated on signs of easing inflation and improved foreign exchange stability. The goal of the cut was to slightly loosen the reins on the economy and support growth by making credit marginally cheaper for businesses and consumers.

However, the subsequent surge in M3, heavily driven by domestic credit expansion (NDA), presents a latent risk. A rapid increase in the money supply can lead to too much money chasing too few goods, potentially fueling demand-pull inflation. For a country already battling persistent price increases, this risk is substantial.

This context provides a clear rationale for the MPC's decision in November to hold the MPR steady at 27%. By pausing the policy easing cycle, the CBN signaled its vigilance and determination to prevent the observed liquidity expansion from undermining the hard-won disinflationary gains. The decision to maintain a generally tight monetary stance is a strategic attempt to calibrate the financial system—allowing the economy to benefit from the initial easing while firmly anchoring inflation expectations.

In essence, the October 2025 money supply figures confirm that domestic credit dynamics, supported by potential government financing and the recent policy shift, are now the primary shapers of Nigeria's liquidity conditions. The sustained growth of M3, particularly the sharp rise in NDA, underscores the fine line the CBN must walk between stimulating growth and managing the ever-present threat of runaway inflation.