Nigeria Money Supply Drops to 4-Month Low in January 2026: CBN Tightens Liquidity

Sofia, Bulgaria – Nigeria’s efforts to curb inflation and stabilize its economy have taken a significant step, with the broad money supply (M3) declining to N123.36 trillion in January 2026. This represents a four-month low, signaling the impact of aggressive liquidity management measures implemented by the Central Bank of Nigeria (CBN). The contraction in money supply, a key indicator of economic health, reflects a deliberate strategy to rein in rising prices and bolster the value of the naira, though the long-term effects remain to be seen.

The CBN reported that M3 fell by 0.84 percent month-on-month in January, down from N124.41 trillion in December 2025. This decline follows a similar trend observed in September 2025, when the money supply decreased from N119.69 trillion to N117.78 trillion. Despite the recent contraction, the overall liquidity in the Nigerian financial system remains elevated compared to the previous year, with the January 2026 figure still 11.04 percent higher than the N111.10 trillion recorded in January 2025. This indicates that even as the CBN is successfully tightening liquidity, the system is still operating with a substantial amount of money in circulation.

The CBN’s actions are rooted in a broader strategy to address inflationary pressures that have been impacting the Nigerian economy. The bank has been actively employing tools like Open Market Operations (OMO) and the Standing Deposit Facility to mop up excess liquidity, effectively withdrawing funds from commercial banks. This aggressive approach is intended to reduce the amount of money available for lending and spending, thereby cooling down demand and curbing inflation. The effectiveness of these measures will be closely watched by economists and policymakers in the coming months.

CBN’s Aggressive Liquidity Management

The scale of the CBN’s intervention is substantial. In January 2026 alone, the bank absorbed approximately N13.41 trillion from the banking system, a dramatic increase compared to the N2.77 trillion absorbed during the same period in 2025. This surge in liquidity sterilization is a clear indication of the CBN’s commitment to controlling the money supply. The use of OMO sales, in particular, has seen a massive increase, surging by 1,607.03 percent year-on-year to N8.53 trillion in January 2026, compared to roughly N500 billion in January 2025, according to data released by the apex bank. Nairametrics reports that this underscores the regulator’s more assertive stance in managing liquidity.

Beyond broad money supply, other indicators reflect this tightening trend. Currency in circulation experienced a marginal decline, slipping by 0.003 percent month-on-month to N5.731 trillion in January, compared to N5.733 trillion in December. However, year-on-year, currency in circulation increased by 9.47 percent, suggesting a continued preference for cash transactions within the economy. Money held outside the banking sector also saw a decline, falling by 3.66 percent to N5.210 trillion in January, but remained 9.99 percent higher than the January 2025 level. This indicates that while the CBN is making progress, informal cash holdings remain significant.

Impact on Credit Conditions and Interest Rates

The tightening monetary policy is also impacting credit conditions within Nigeria. Credit to the government edged down slightly, decreasing by 0.09 percent month-on-month to N34.19 trillion in January. However, government credit experienced a substantial year-on-year expansion of 36.59 percent. Private sector credit also saw a modest decline, falling by 0.78 percent month-on-month, but grew by 2.76 percent year-on-year. These trends suggest that while overall credit growth is slowing, the government continues to rely heavily on borrowing.

The CBN’s Monetary Policy Committee (MPC) recently adjusted the Monetary Policy Rate (MPR) by reducing it by 50 basis points to 26.5 percent from 27 percent in February 2026. The Times of Nigeria reports that the committee also retained the Cash Reserve Ratio at 45.0 percent for commercial banks, and 16.0 percent for merchant banks. This adjustment is intended to gradually support lending activity as banks respond to lower funding costs and evolving liquidity conditions. However, analysts caution that a meaningful recovery in lending will depend on government borrowing needs and overall system liquidity.

Expert Analysis and Market Reactions

Ayodeji Ebo, Managing Director and Chief Business Officer at Optimus by Afrinvest, commented on the situation, stating that the sharp rise in OMO sales highlights the CBN’s commitment to managing excess liquidity, controlling inflation, and supporting exchange-rate stability. He further noted that increased OMO issuances can attract foreign portfolio inflows seeking improved yields, while also influencing domestic interest rates and borrowing costs. “It signals a tightening monetary stance aimed at stabilising the economy, although its effectiveness will depend on broader fiscal policies and external conditions,” Ebo said.

The recent monetary policy adjustments come against a backdrop of declining inflation. The National Bureau of Statistics (NBS) reported that headline inflation declined for the eleventh consecutive month to 15.1 percent in January 2026, reflecting continued price moderation. This positive trend suggests that the CBN’s policies are beginning to have a tangible effect on the economy, although sustained efforts will be required to achieve long-term price stability.

Looking Ahead: Challenges and Opportunities

Nigeria’s economic landscape remains complex, with both challenges and opportunities on the horizon. While the CBN’s efforts to tighten liquidity are a positive step towards controlling inflation and stabilizing the naira, the effectiveness of these measures will depend on a range of factors, including government fiscal policies, global economic conditions, and the behavior of both domestic and foreign investors. The interplay between these factors will determine the trajectory of Nigeria’s economic growth in the coming months.

Analysts at the Financial Market Dealers Association (FMDA) suggest that the recent reduction in the MPR could initiate to influence credit conditions from March onward, potentially supporting lending activity. However, they also emphasize that any significant recovery in lending will be contingent on government borrowing needs and overall system liquidity. This highlights the delicate balancing act that the CBN faces in managing monetary policy.

The CBN’s next Monetary Policy Committee meeting, scheduled for [Date of next MPC meeting – not provided in source, needs verification], will be a crucial event to watch. The committee’s decisions at that meeting will provide further insights into the CBN’s outlook for the Nigerian economy and its plans for managing monetary policy in the months ahead. Stakeholders will be closely monitoring the CBN’s actions and assessing their impact on inflation, exchange rates, and overall economic growth.

Key Takeaways:

• Nigeria’s broad money supply (M3) contracted to N123.36 trillion in January 2026, a four-month low.
• The CBN is aggressively tightening liquidity through Open Market Operations (OMO) and the Standing Deposit Facility.
• Credit conditions are reflecting the tighter monetary policy, with modest declines in both government and private sector credit.
• Inflation has been declining for eleven consecutive months, indicating some success in the CBN’s efforts.
• The effectiveness of these policies will depend on broader fiscal policies and external economic conditions.

The coming months will be critical for Nigeria as it navigates a complex economic environment. Continued vigilance and proactive policy adjustments will be essential to ensure sustainable growth and stability. We encourage readers to share their perspectives and engage in a constructive dialogue about the challenges and opportunities facing the Nigerian economy.