Demand deposits fell marginally by N318.71 billion or 0.89 per cent, to N35.42 trillion in June this year from N35.74 trillion in the preceding month, latest data released by the Central Bank of Nigeria (CBN) shows. According to the apex bank, “a demand deposit is money deposited into a bank account with funds that can be withdrawn on-demand at any time.”
It is distinct from a fixed deposit, which has a fixed maturity date and may incur penalties for early withdrawals. An analysis of the money and credit statistics data, published by the CBN, indicates that while demand deposits maintained an upward trend in the first four months of this year, they headed south in May and June.
Specifically, the data shows that demand deposits rose from N32.19 trillion in January to N33.20 trillion in February, N33.96 trillion in March and N36.44 trillion in April.
However, they dropped to N35.74 trillion and N35.42 trillion in May and June respectively. Analysts believe that the recent downtrend in demand deposits indicates that the CBN’s monetary tightening measures, aimed at reining in inflation and ensuring exchange rate stability, are leading to a reduction in available liquidity in the banking system.
In fact, although the rebasing of the Consumer Price Index (CPI) index by the National Bureau of Statistics (NBS) resulted in the headline inflation rate falling sharply from 34.80 per cent in December 2024 to 24.48 per cent in January 2025, and further falling to 22.97 per cent YoY and 22.22 per cent in May and June respectively, the CBN’s Monetary Policy Committee (MPC) has left the MPR unchanged at the 27.5 per cent that it raised the rate to in November last year.
Other key monetary policy tools that have been left unchanged by the regulator are the Cash Reserve Ratio (CRR) which remains at 50 per cent for commercial banks and 16 percent for merchant banks, as well as the Liquidity Ratio which stands at 30 per cent.
Commenting on the CBN’s Money and Credit Statistics report for May, analysts at FBNQuest pointed out that apart from its impact on Private Sector Credit Extension (PSCE), the apex bank’s tight monetary policy stance was also beginning to have the desired impact on inflation and the growth momentum of money supply. The analysts stated: “The recent deceleration in the inflation readings suggests that inflation is beginning to yield to the CBN’s tightening efforts, following a prolonged period of rising inflation.
“Excluding a brief pause in March, Nigeria’s inflation reading has steadily declined, with the latest headline reading decreasing to 22.97 per cent YoY in May, down from 23.71 per cent YoY in April. “In the same vein, the Bank’s restrictive monetary policy stance has also impacted the growth momentum of money supply, which is of particular interest to the monetary authorities.
“For illustration, the growth of broad money supply (M3) and (M2) money supply slowed to 20% YoY in May, down from the expansion of 78% YoY recorded a year ago. “Net foreign assets remained a key driver of broad money supply, delivering a strong 199% YoY growth to N45.8 trillion in May.
“However, on a m/m basis, the overall value of net foreign assets declined by -8% MoM, reflecting the CBN’s continuous active participation in the FX market amid subdued inflows from FPIs due to heightened global uncertainty.
“For context, on a year-to-date (YTD) basis, gross external reserves have declined by -$3.5 bn to N37.37 billion as of June 26, 2025.” Interestingly, a recent report released by Unity Bank stated that the rising cost of living in the country was responsible for an increase in cash withdrawals by consumers.
The report said that consumers are grappling with diminished purchasing power, occasioned by persistent inflation and exchange rate volatility, adding that this may negatively impact the retail and hospitality sectors as well as some Small and Medium Enterprises (SMEs).
It stated: “Consumers face diminished purchasing power due to persistent inflation and currency volatility. Many are withdrawing more cash, likely as a response to rising costs. “Reduced discretionary spending may impact retail, hospitality, and SMEs dependent on consumer demand. A 2024 National Bureau of Statistics report found 43% of Nigerian SMEs struggle with credit access, a problem that may worsen under tighter monetary conditions.”
𝗙𝗼𝗹𝗹𝗼𝘄 𝗢𝘂𝗿 𝗪𝗵𝗮𝘁𝘀𝗔𝗽𝗽 𝗖𝗵𝗮𝗻𝗻𝗲𝗹 𝗧𝗼 𝗚𝗲𝘁 𝗟𝗮𝘁𝗲𝘀𝘁 𝗡𝗲𝘄𝘀 𝗔𝘀 𝗜𝘁'𝘀 𝗗𝗿𝗼𝗽!
