Nigeria’s cash flow dynamics showed signs of stabilisation in February 2026, as currency held outside the banking system declined slightly to ₦5.20 trillion, indicating easing pressure on physical cash demand after the festive season.

Latest data from the Central Bank of Nigeria revealed that cash outside banks dropped marginally by 0.058 percent from ₦5.21 trillion recorded in January, reflecting a gradual return of funds into the formal banking system.

The figures also showed that total money supply fell to ₦123.14 trillion in February, down from ₦123.35 trillion in the previous month, while currency in circulation remained relatively stable at ₦5.73 trillion.

Analysts attribute the moderation to post-holiday financial behaviour, as households and businesses redeposited excess cash withdrawn during the high-spending festive period.

Data trends indicate that cash outside banks had peaked at ₦5.41 trillion in December 2025 before easing in the first two months of 2026, aligning with Nigeria’s typical seasonal liquidity cycle.

Despite the slight decline, experts note that cash continues to play a dominant role in Nigeria’s economy, particularly within the informal sector, where reliance on physical transactions remains high.

The apex bank maintains that improved liquidity recycling into the banking system enhances financial intermediation and strengthens the effectiveness of monetary policy.

Economic observers say the current trend suggests a gradual normalisation of liquidity conditions, even as digital payment channels continue to expand across the country.

However, they caution that the persistent dependence on cash highlights the need for sustained efforts to deepen financial inclusion and accelerate the adoption of electronic payment systems.

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Nigeria’s financial system experienced a significant liquidity squeeze at the start of 2026 after the Central Bank of Nigeria withdrew N13.41 trillion from circulation in January, signalling a strong push to tighten monetary conditions and curb inflation.

New data released by the Financial Markets Dealers Association (FMDA) show that the volume of funds removed from the banking system was nearly five times higher than the N2.77 trillion mopped up in the same month in 2025.

The aggressive liquidity sterilisation coincided with declines in key financial indicators, including money supply, bank reserves and private sector credit, reflecting a deliberate tightening strategy by the apex bank at the start of the year.

Money Supply Records Decline

According to the January 2026 monetary statistics, Nigeria’s broad money supply (M3), which measures the total volume of money circulating within the economy, declined by 0.8 percent month-on-month.

The figure dropped to N123.36 trillion in January from N124.41 trillion recorded in December 2025.

Similarly, narrow money (M2), which represents more liquid forms of cash and deposits readily available for spending, also slipped slightly to N123.35 trillion from N124.40 trillion in the previous month.

The contraction came after a strong expansion in December 2025, when currency in circulation surged during the festive season and year-end financial activities.

Private Sector Credit Slows

The tightening liquidity environment also affected credit flow to businesses.

Data show that private sector credit moderated by 0.8 percent to N75.24 trillion in January, down from N75.83 trillion in December 2025.

Credit to government also recorded a marginal decline, easing by 0.1 percent to N34.19 trillion from N34.22 trillion.

Financial analysts say the slowdown reflects cautious lending behaviour by banks as monetary authorities attempt to stabilise inflation and manage excess liquidity within the economy.

Bank Reserves Drop Sharply

The liquidity withdrawal had a more visible impact on banking sector reserves.

Total bank reserves fell by 5.5 percent to N30.26 trillion in January, compared with N32.04 trillion in December 2025, highlighting the direct effect of the central bank’s aggressive mop-up operations.

Currency outside banks also declined by 3.7 percent to N5.21 trillion from N5.41 trillion, while currency in circulation remained largely stable at N5.73 trillion.

These trends suggest tighter interbank liquidity conditions during the month.

Foreign Assets Decline as Domestic Assets Rise

A deeper breakdown of the data shows diverging movements between foreign and domestic assets in Nigeria’s banking system.

Net foreign assets dropped by 6 percent to N29.61 trillion in January from N31.51 trillion in December 2025.

Over a six-month period, foreign assets declined significantly from N41.66 trillion recorded in September 2025.

In contrast, net domestic assets continued to expand. The figure increased by 0.9 percent to N93.76 trillion in January, compared with N92.90 trillion in the previous month.

The steady growth in domestic assets has been largely supported by continued expansion in local credit and government financial activity.

Policy Outlook Signals Possible Shift

Despite the tightening seen in January, Nigeria’s monetary policy outlook may be entering a new phase.

The Monetary Policy Committee of the Central Bank of Nigeria reduced the benchmark interest rate from 27 percent to 26.5 percent on February 24, suggesting that the peak of the tightening cycle may have passed.

Throughout 2025, the central bank maintained an aggressive policy stance, relying heavily on treasury bill issuances and open market operations to absorb excess liquidity from the banking system.

Even with these interventions, liquidity levels remained high during the final months of the year, particularly in November and December.

Economic analysts believe the sharp liquidity withdrawal recorded in January reflects the apex bank’s effort to rebalance the system before gradually easing policy conditions.

If the current trajectory continues, improved liquidity and slightly lower policy rates could begin to influence lending activity and credit expansion from the second quarter of 2026.

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Nigeria’s money supply climbed to N124.41 trillion at the end of 2025, reflecting a sharp increase in liquidity across the financial system despite continued monetary tightening by the Central Bank of Nigeria (CBN).

Latest data from the CBN’s Money and Credit Statistics show that broad money supply (M3) rose by N11.05 trillion year-on-year, from N113.36 trillion in December 2024 to N124.41 trillion in December 2025. The growth was driven largely by strong expansion in bank deposits, currency outside the banking system, and increased government borrowing.

Analysts say the figures highlight a disconnect between tight monetary policy and actual liquidity conditions in the economy, as elevated interest rates have not fully curbed money growth.

Deposit Growth Drives Liquidity Expansion

A major contributor to the rise in money supply was quasi money, which includes savings and time deposits. Quasi money increased to N82.26 trillion in December 2025, up from N74.52 trillion recorded a year earlier. This represents a N7.74 trillion increase, signalling stronger deposit mobilisation by deposit money banks.

The growth suggests that higher interest rates may have encouraged Nigerians to hold more funds in savings and fixed deposit accounts, even as borrowing costs remain elevated.

Narrow money also expanded over the period, rising to N42.14 trillion in December 2025 from N38.81 trillion in December 2024. This reflects a year-on-year increase of N3.33 trillion.

Within this category, currency outside banks rose to N5.41 trillion, compared to N5.13 trillion a year earlier. The N282.6 billion increase points to sustained cash usage across households and the informal sector, where cash transactions remain dominant.

Demand deposits, which capture funds held in current accounts, recorded even stronger growth. They rose to N36.73 trillion in December 2025 from N33.69 trillion in December 2024, an increase of about N3.04 trillion. This trend reflects higher transaction volumes, increased government spending, and improved nominal economic activity.

Credit Expansion Skewed Toward Government

The data also show that net domestic credit expanded alongside money supply growth. Net domestic credit rose to N110.06 trillion in December 2025 from N105.16 trillion a year earlier.

However, credit to the private sector declined slightly, falling to N75.83 trillion from N78.02 trillion. This suggests that businesses and households faced tighter credit conditions, likely due to high interest rates and stricter lending standards.

In contrast, credit to the government increased sharply, rising to N34.22 trillion in December 2025 from N27.14 trillion in December 2024. The increase underscores the role of public sector borrowing in driving liquidity growth during the period.

Economists note that sustained government borrowing can inject liquidity into the system even when monetary authorities are attempting to tighten financial conditions.

Base Money, Cash in Circulation Rise

Base money, which measures the most liquid components of the monetary system, also recorded significant growth. It stood at N37.77 trillion in December 2025, up from N32.67 trillion in December 2024, representing a N5.10 trillion increase.

Currency in circulation rose to N5.73 trillion from N5.44 trillion, while bank reserves increased to N32.04 trillion from N27.23 trillion over the same period. The rise in reserves reflects liquidity management operations by the CBN and increased deposits within the banking system.

Money Market Conditions Remain Tight

Despite the rise in overall money supply, liquidity conditions in the money market remained tight in recent weeks. System liquidity closed last week at a N2.4 trillion deficit, deeper than the N1.6 trillion shortfall recorded in the previous week.

The tightness was attributed to limited inflows and high standing deposit facility placements of about N2.5 trillion, which continued to sterilise available funds. Intermittent liquidity injections from primary market repayments were insufficient to ease pressures.

At its most recent Treasury bills auction, the CBN offered N150 billion of 91-day bills, N200 billion of 182-day bills, and N800 billion of 364-day instruments. Investor demand was strongest for the 364-day bills, with subscriptions reaching about N4.4 trillion.

Stop rates settled at 15.8 per cent for 91-day bills, 16.7 per cent for 182-day bills, and 17.0 per cent for 364-day bills.

Interbank rates, however, moderated. The overnight policy rate (OPR) and overnight rate (OVN) declined to 22.5 per cent and 22.8 per cent, respectively, from over 26 per cent previously, suggesting easing funding stress across the banking system.

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