Nigeria’s broad money supply (M3) dropped to N117.78 trillion in September 2025, marking a 1.6% decline from N119.69 trillion in August, according to fresh data from the Central Bank of Nigeria (CBN).
The contraction coincided with the Monetary Policy Committee’s decision to cut the Monetary Policy Rate (MPR) for the first time in five years.
Despite the monthly fall, M3 was still up 7.6% year-on-year compared to N109.41 trillion in September 2024, showing the balance between longer-term liquidity expansion and short-term tightening pressures.
M3, which captures M2 (currency, demand deposits, and quasi-money) alongside other broad components, is shaped by net domestic assets and net foreign assets. These two pillars offer clues to what drove the September decline.
The CBN’s rate cut was announced by Governor Olayemi Cardoso after the 302nd MPC meeting held on September 22–23. The committee reduced the MPR by 50 basis points to 27.00%, adjusted the Standing Facilities corridor to +250/-250 basis points, raised the Cash Reserve Requirement (CRR) for commercial banks to 45%, and introduced a 75% CRR on non-TSA public sector deposits. The Liquidity Ratio was retained at 30%.
Cardoso emphasised that the easing was designed to balance growth concerns with inflation risks, marking the first cut since September 2020. It followed six consecutive hikes in 2024 and three pauses earlier in 2025.
Yet, even with the benchmark cut, the September data shows domestic credit conditions tightened. Net domestic assets dropped by 2.5% to N76.12 trillion from N78.10 trillion in August, effectively dragging down M3. This suggests that the higher CRR requirements and stricter liquidity rules outweighed the marginal relief from the interest rate cut, constraining banks’ ability to expand credit.
Meanwhile, net foreign assets edged slightly higher to N41.66 trillion from N41.59 trillion in August, a 0.2% rise. This provided some cushion but was far too small to offset the contraction in domestic assets. Compared to a year earlier, when foreign assets stood at N19.50 trillion, September’s balance showed a sharp improvement, but it still played a limited role in monthly liquidity dynamics.
M2 declined by 1.6% to N117.77 trillion in September from N119.68 trillion in August. On a year-on-year basis, however, it still grew by 7.7% from N109.40 trillion in September 2024. M2 tracks cash, demand deposits, and savings or term deposits, providing a window into households’ and firms’ financial balances. Its contraction suggests deposit growth slowed, possibly reflecting weaker banking sector credit creation and tighter liquidity from the CRR hike.
Narrow money (M1), which covers the most liquid forms of money such as cash and demand deposits, dipped to N39.11 trillion in September from N39.39 trillion in August, a 0.7% decline. But compared to N35.86 trillion in September 2024, M1 grew by 9.1%, showing stronger cash balances than last year despite the monthly pullback.
M1 is often watched as a barometer of immediate spending power. Its fall in September suggests consumers and businesses had less ready cash to spend, consistent with the effects of tighter liquidity rules even as the interest rate cut signalled some relief.
The September figures highlight the tension at the heart of Nigeria’s monetary policy. The CBN’s first rate cut in half a decade was meant to ease borrowing costs and support growth. However, the simultaneous increase in CRR requirements and strict liquidity measures constrained the banking sector, pulling down M3 and other money aggregates.
While rate cuts may continue if inflation eases, liquidity will remain under pressure unless foreign inflows strengthen or the CBN relaxes its reserve requirements. For now, the drop in money supply suggests that, despite the symbolic rate cut, the CBN’s tightening hand is still firmly on the tiller of Nigeria’s financial system.
The CBN’s MPC is expected to meet on 24-25 November 2025, and with headline inflation having eased to 18.02% in September, the monetary policy committee faces pressure to consider further rate cuts even as liquidity remains constrained.
Source: Nairametrics
