Economy awash with cash despite unchanged interest rates

…Money supply hits N123trn as CBN pulls N3.7trn out of circulation

…Excess cash, election spending may weaken inflation fight –Experts

By Chinwendu Obienyi

Nigeria’s fight against inflation is not over yet, even though price increases are slowing down.

Experts warn that the economy is still carrying a lot of cash and that upcoming election-related spending could make it harder to keep inflation under control.

This is happening even though money supply dipped slightly from N123.354 trillion to N123.140 trillion.

At the same time, the Central Bank of Nigeria (CBN) has kept its benchmark interest rate at 26.5 per cent. The decision continues its long-running effort to cool inflation, support the naira, and attract foreign investors.

In simple terms, while prices are rising more slowly, there are concerns that too much money in circulation and increased political spending could keep inflation pressures alive.

However, beneath the improving inflation data, concerns are mounting over the size of liquidity circulating in the economy.

Specifically, broad money supply (M3) stood at N123.354 trillion in January 2026 before easing marginally to N123.140 trillion, a level some analysts say remains inconsistent with a durable decline in inflation.

Chief Executive Officer, Financial Derivatives Company Ltd, Bismarck Rewane while welcoming the recent sovereign ratings upgrade and improving exchange-rate stability, cautioned that inflationary pressures from food prices, government spending and excess liquidity have not disappeared.

“The CBN governor was silent on money supply growth which is concerning as it has a transmission effect on the economy,” Rewane said.

He warned that inflation could accelerate again in the coming months, potentially rising to about 16.5 per cent, even after moderating to 15.69 per cent.

Raising concerns over the growing reliance on imports to tame food prices, Rewane argued that while the strategy may deliver short-term relief, it risks undermining domestic producers and small businesses by exposing them to competition from lower-priced imports.

“One element of the inflation trajectory which i think is an issue of concern amongst many economists is that when you import products to bring down the price of products below the cost of production, prices will come down but a lot of people will be thrown out of work especially in the SMEs. Hence something has to be done to protect domestic production activity whilst at the same time you can use imported commodities to actually bring down the prices in a short term. Right now, that is a major issue across.

“My view is that inflation in May and June could actually rise further to about 16.5 per cent. But the good thing is that Nigeria is in a stronger position to have a stable, predictable and well managed exchange rate”, He stressed.

Also speaking, Chairman, Ignite Capital, Kyari Bukar, said that election-year spending is likely to inject fresh liquidity into the economy, complicating the central bank’s efforts to maintain price stability.

“Already, the CBN knows that in an election year, there will be a huge expansionary spemding and so there will be liquidity that will be injected into the economy. There will be back end tightening that will take place. Anytime there is a release of liquidity, the apex bank will go and mop it out.

“I was expecting the non-TSA government deposit numbers to go up to 85 per cent but stopped at 75 per cent. But if at the next meeting, if for example, they were to touch the CRR by reducing it, then there will be more of the buyback that may happen but right now, OMO will be the one of the instrumental tool that will be used in tightening liquidity because election year means that liquidity will be injected into the market whether we like it or not and we are even seeing it by the way”, Bukar said.

Also commenting, the Chief Executive Officer, Centre for the Promotion of Private Enterprises (CPPE), Muda Yusuf, argues that Nigeria’s current inflationary pressures are not primarily monetary but rooted in deeper structural weaknesses and global shocks.

Pointing to the intensifying conflicts involving Iran, Israel, and the United States as drivers of volatility in global energy markets, Yusuf stated this has pushed up crude oil prices and transmitted severe cost pressures into domestic energy prices, transportation, logistics and manufacturing operations.

“Monetary policy is a powerful stabilisation instrument, but it cannot repair supply chains, resolve geopolitical conflicts or eliminate structural bottlenecks in production and distribution. Attempting to force down structural inflation solely through aggressive monetary tightening would amount to applying a monetary solution to a structural problem,” Yusuf added.

For now, the central bank appears determined to keep monetary conditions tight. High interest rates continue to support the naira by attracting foreign portfolio investment, while tighter liquidity management is expected to limit speculative demand for foreign exchange.

Still, with more than N123 trillion circulating within the economy and fiscal spending expected to accelerate, analysts say the next phase of Nigeria’s inflation fight may depend less on interest-rate decisions and more on how effectively the government as well as the apex bank manages liquidity without choking economic activity.

Meanwhile, the Central Bank of Nigeria (CBN) stunned the financial market on May 21, 2026, after it pulled a massive N3.692 trillion out of the banking system in a single auction. It signalled a more aggressive push to curb excess cash and inflation.

The apex bank had offered just N600 billion in short-term instruments, but investors flooded the auction with N3.7 trillion, over six times the amount available. In a clear shift from its earlier cautious stance, the CBN accepted all the bids, a sharp contrast to May 12 when it took only N116 billion out of N872 billion offered.

The move shows the banking system is awash with cash, with investors scrambling for the CBN’s high-interest securities. The 33-day bill alone attracted N1.525 trillion, while the 138-day paper pulled in N2.168 trillion, both far above their N300 billion offers. Interest rates settled at about 21.6 per cent for the shorter tenor and 20 per cent for the longer one.

By taking in the entire N3.7 trillion, the CBN effectively locked away huge liquidity that would have otherwise circulated in the economy, a deliberate step to reduce inflation pressure.

The effect was immediate. Banks’ overnight deposits with the CBN dropped sharply from N6.1 trillion on May 20 to N2.7 trillion by May 22, showing how much cash had been absorbed. Opening balances across the banking system also declined within the same period.

The surge in liquidity was largely driven by recent repayments. The CBN had released about N4.78 trillion from maturing instruments earlier in May, including a N2.247 trillion repayment on May 19 alone. Much of that money quickly found its way back into the May 21 auction.

At the same time, fresh government borrowings, such as treasury bills and bonds worth over N829 billion, were settled alongside repayments of about N634 billion, further boosting cash levels before the mop-up.

In simple terms, too much money was chasing too few investment options, and the CBN stepped in forcefully to pull it back.

Compared to May 12, the difference is dramatic. The latest operation saw the apex bank absorb more than 30 times the amount it took just nine days earlier, underlining a decisive shift in strategy.

With this move, the CBN has made its position clear: it is tightening liquidity aggressively and will continue to soak up excess cash to keep inflation in check.