Nigeria’s Money Supply Drops to 4-Month Low in January 2026 | CBN Tightens Liquidity

Nigeria’s money supply experienced a notable contraction in January 2026, falling to a four-month low as the Central Bank of Nigeria (CBN) continued its efforts to curb inflation and stabilize the nation’s economy. Broad money supply (M3) decreased by 0.84 percent month-on-month, reaching N123.36 trillion, down from N124.41 trillion in December 2025. This decline reflects the impact of increasingly stringent liquidity management policies implemented by the CBN at the beginning of the year, signaling a deliberate move to tighten monetary conditions.

CBN’s Liquidity Tightening Measures

The CBN’s actions are rooted in a broader strategy to address inflationary pressures and bolster economic stability. Data released by the apex bank reveals a substantial increase in cash withdrawals from the banking system. According to analysis from the Financial Market Dealers Association (FMDA) Research, the CBN absorbed approximately N13.41 trillion in January 2026, a significant jump from the N2.77 trillion withdrawn during the same period in 2025. This aggressive “cash sweep” contributed to the contraction in both money supply and reserve balances.

The CBN has been employing a range of tools to manage liquidity, including Open Market Operations (OMO) and the Standing Deposit Facility. OMO sales, in particular, have seen a dramatic surge, increasing by 1,607.03 percent year-on-year to N8.53 trillion in January 2026, compared to roughly N500 billion in January 2025. This substantial increase underscores the regulator’s commitment to actively managing liquidity within the financial system. These measures are consistent with a global trend of central banks responding to inflationary pressures with tighter monetary policy, though the scale and speed of the CBN’s actions are noteworthy. Nairametrics provides further detail on these figures.

Beyond Monthly Contraction: Annual Trends and Context

Even as the month-on-month contraction is significant, it’s crucial to consider the broader annual context. Despite the January decline, the money supply remained 11.04 percent higher than in January 2025, when it stood at N111.10 trillion. This indicates that overall liquidity in the system remains elevated compared to the previous year, suggesting the CBN’s efforts are aimed at moderating, rather than eliminating, excess liquidity. The last comparable decline occurred in September 2025, when money supply fell to N117.78 trillion from N119.69 trillion.

Currency in circulation likewise experienced a marginal decline, slipping by 0.003 percent month-on-month to N5.731 trillion in January. Still, year-on-year, currency in circulation increased by 9.47 percent, from N5.235 trillion in January 2025, indicating a steady expansion in cash holdings over the longer term. Money held outside the banking sector saw a sharper monthly decline of 3.66 percent, but remained 9.99 percent higher than the January 2025 level. This suggests that while the CBN is impacting liquidity, informal cash holdings remain relatively high.

Impact on Credit and Government Borrowing

The tighter liquidity environment has also had a discernible impact on credit conditions. Credit to the government edged down by 0.09 percent month-on-month to N34.19 trillion in January, while private sector credit fell by 0.78 percent to N75.241 trillion. However, both government and private sector credit experienced significant year-on-year growth, though at a slower pace than previously observed. This slowdown in lending momentum reflects the tighter financial conditions and the CBN’s efforts to curb excessive credit expansion.

Ayodeji Ebo, Managing Director and Chief Business Officer at Optimus by Afrinvest, noted that the surge in OMO sales signals the central bank’s commitment to managing excess liquidity, controlling inflation, and supporting exchange-rate stability. He further explained that higher OMO issuances can attract foreign portfolio inflows seeking improved yields, while also influencing domestic interest rates and borrowing costs. Leadership reports on Ebo’s analysis.

Monetary Policy Committee Adjustments and Future Outlook

The CBN’s Monetary Policy Committee (MPC) recently adjusted the Monetary Policy Rate (MPR) from 27 percent to 26.5 percent on February 24, 2026. Analysts at FMDA suggest this adjustment could gradually support lending activity as banks respond to slightly lower funding costs and evolving liquidity conditions. However, they caution that a meaningful recovery in lending will depend on government borrowing needs and overall system liquidity, indicating that while policy easing may have begun, monetary conditions remain tight and carefully calibrated.

The decision to lower the MPR, while seemingly counterintuitive given the ongoing efforts to tighten liquidity, reflects a nuanced approach to balancing inflation control with economic growth. The CBN is likely attempting to strike a delicate balance between curbing inflationary pressures and supporting economic activity, recognizing that excessively tight monetary conditions could stifle growth and investment. PM News Nigeria provides additional context on the MPC’s decision.

Regional Implications and Broader Economic Context

Nigeria’s monetary policy decisions have implications beyond its borders, particularly within the West African subregion. As the largest economy in West Africa, Nigeria’s economic performance and monetary policy stance can influence economic conditions in neighboring countries. A stable Nigerian economy can contribute to regional economic growth and stability, while economic instability in Nigeria can have spillover effects on the wider region. The CBN’s efforts to control inflation and stabilize the exchange rate are therefore not only important for Nigeria but also for the broader West African economic community.

Confirmed vs. Unclear

This proves confirmed that Nigeria’s broad money supply (M3) contracted in January 2026, falling to N123.36 trillion. It is also confirmed that the CBN has been actively tightening liquidity through OMO sales and other measures. The impact of the MPR reduction on lending activity remains unclear and will depend on a range of factors, including government borrowing needs and overall system liquidity. The long-term effectiveness of the CBN’s policies in controlling inflation and stabilizing the exchange rate is also unclear and will require ongoing monitoring and assessment.

Next Steps: Monitoring and Policy Adjustments

The CBN will continue to monitor key economic indicators, including inflation, exchange rates, and credit growth, to assess the effectiveness of its monetary policy measures. Further adjustments to the MPR and other policy tools are likely, depending on the evolving economic conditions. The CBN’s next MPC meeting will be crucial in providing further guidance on its monetary policy stance. Analysts will be closely watching for any signals regarding the CBN’s willingness to further ease monetary conditions or to maintain its current tightening bias. The trajectory of government borrowing and the level of foreign exchange reserves will also be key factors influencing the CBN’s policy decisions.