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Daniel Adaji
Nigeria’s banking system recorded a liquidity boost in March 2025, as commercial banks’ reserves with the Central Bank of Nigeria (CBN) surged to N28.5tn, up from N27.6tn in February.
The sharp rise reflects the apex bank’s tighter monetary policy and a renewed focus on inflation control.
According to the CBN’s data on Tuesday, this increase in bank reserves coincides with a continuing decline in currency in circulation (CIC)—which fell to N5tn in March. This marks the third consecutive monthly drop in 2025, down from N5.04tn in February and N5.24tn in January.
CIC refers to the physical cash—notes and coins—issued by the central bank that is actively used outside the banking system for transactions. A drop in this figure often signals stronger digital payment adoption or deliberate cash mop-up by the central bank to limit inflation.
The combination of higher bank reserves and lower CIC reflects the CBN’s strategy to rein in inflation, stabilize the naira, and promote financial intermediation.
At its February 2025 Monetary Policy Committee (MPC) meeting, the apex bank raised the Cash Reserve Ratio (CRR) to 50 per cent, compelling banks to hold more of their deposits with the CBN. This move is widely seen as a bold inflation-fighting stance.
Meanwhile, Nigeria’s foreign exchange (FX) reserves dropped to $37.88bn on April 16, marking a four-month low. The figure has steadily declined from over $40.8bn recorded in early January, reflecting increasing pressure on the country’s external balance.
The CBN’s Economic Report for January 2025 revealed that total forex inflows fell to $9.63bn, down from $10.17bn in December 2024—a 5.31 per cent decline. This was largely due to a steep fall in inflows via official channels, which shrank to $2.33bn, from $4.09bn the previous month.
Conversely, autonomous inflows—funds from private investors, exporters, and remittances—increased to $7.31bn, up from $6.08bn. These non-government sources are becoming increasingly critical in sustaining foreign exchange supply.
Despite the FX squeeze, the naira strengthened against the dollar during the same period. At the Nigerian Foreign Exchange Market (NFEM), the average exchange rate appreciated by 1.16 per cent in January, settling at N1,535.94/USD, and further improved to N1,478.22/USD by month-end.
The simultaneous rise in bank reserves and drop in CIC points to deliberate liquidity tightening by the CBN. The monetary authority appears to be reinforcing its “Digital First” policy thrust, introduced in December 2023 under Governor Olayemi Cardoso.
In January 2025, the CBN launched a new naira payment platform designed to boost efficiency across government ministries and agencies by reducing transaction turnaround time by 70 per cent. These reforms align with broader efforts to modernize Nigeria’s financial system and reduce reliance on physical cash.
However, challenges remain on the external front. According to the CBN, net foreign exchange inflow fell by 4.49 per cent, from $5.01bn in December to $4.79bn in January. Outflows through the CBN also declined to $3.80bn, while autonomous outflows slightly rose to $1.04bn, resulting in a net CBN outflow of $1.47bn—a steep jump from $0.07bn in December.
PwC has warned that ongoing deportations of Nigerian workers in the U.S. could shrink diaspora remittances and strain Nigeria’s fiscal space. “Reduced remittance inflows could put pressure on household spending and Nigeria’s fiscal stability,” the firm noted in a recent outlook.
Even with some gains in the FX market—such as the 18.3 per cent increase in turnover to $408.49m in January—the sustained drop in reserves suggests persistent vulnerabilities that may test Nigeria’s monetary resilience in the months ahead.