Nigeria’s private sector borrowed an additional N1.89 trillion in November 2024, raising the total credit to N75.96 trillion from N74.07 trillion in October.
This surge occurred despite the Central Bank of Nigeria’s (CBN) aggressive monetary tightening under Governor Yemi Cardoso.
The CBN’s strategy to curb inflation through persistent interest rate hikes has yet to fully deter private sector borrowing, reflecting the resilience—or necessity—of credit reliance in the Nigerian economy.
The borrowing activity in November highlights the private sector’s continued dependence on loans to sustain operations, even in an environment of elevated interest rates.
The sustained credit demand comes at a time when the Monetary Policy Rate (MPR) has been raised six times in 2024, highlighting the complexity of balancing inflation control with economic growth.
What does the data say
A detailed analysis of the CBN’s money and credit statistics reveals significant fluctuations in private sector credit throughout 2024. In February, private sector borrowing reached a peak of N80.86 trillion, rising sharply from N76.48 trillion in January. This marked an increase of N4.38 trillion, reflecting heightened credit activity despite rising rates.
- However, March saw a notable decline, with credit dropping by N9.65 trillion to N71.21 trillion. This dip was followed by a gradual recovery in April and May, with borrowing levels reaching N74.31 trillion by the end of May. In June, credit fell again to N73.19 trillion, only to rebound in July, when it climbed to N75.51 trillion.
- A minor decline was recorded in August, with credit falling to N74.73 trillion. This was reversed in September, as borrowing increased to N75.83 trillion. October saw a slight dip to N74.07 trillion, but the private sector regained momentum in November, borrowing an additional N1.89 trillion to reach N75.96 trillion.
- Year-on-year, private sector credit in November 2024 rose significantly by N16.27 trillion, or 27.3%, compared to N59.69 trillion in November 2023. This substantial growth demonstrates the private sector’s sustained reliance on credit to navigate economic uncertainties, including inflation and exchange rate pressures.
Persistent rate hikes under Cardoso
Since assuming office, CBN Governor Yemi Cardoso has intensified the apex bank’s efforts to combat Nigeria’s inflation, which stood at 33.88% in October. Over the course of 2024, the MPR has been raised by a cumulative 875 basis points, making it one of the steepest tightening cycles in recent years.
- In February, the rate was increased by 400 basis points, from 18.75% to 22.75%, marking the largest single hike of the year. This was followed by a rise to 24.75% in March and another increase to 26.25% in May.
- The upward trajectory continued in the second half of the year. In July, the MPR climbed to 26.75%, and by September, it reached 27.25%.
- The most recent adjustment, in November, pushed the rate further to 27.50%. These hikes are aimed at tightening liquidity, stabilizing the naira, and reining in inflation, which has remained persistently high. However, the private sector’s borrowing patterns suggest that businesses are willing to absorb higher financing costs to maintain growth or operational stability.
While the monetary policy has aimed to reduce credit expansion as a tool for inflation control, the private sector’s robust demand for loans highlights the importance of credit in navigating economic challenges.
Implications for monetary policy and the economy
The continued rise in private sector borrowing, despite the CBN’s aggressive interest rate hikes, raises important questions about the effectiveness of monetary tightening as a tool for curbing inflation. While higher rates are typically expected to dampen credit demand, Nigeria’s private sector appears undeterred.
- This could reflect a combination of factors, including the necessity of credit to fund business operations and the challenges of sourcing alternative financing.
- Businesses in Nigeria may view borrowing as an essential strategy to cope with rising costs, including those associated with inflation, supply chain disruptions, and currency devaluation. The increase in credit may also indicate that the private sector is anticipating long-term economic recovery and is positioning itself to capitalize on future opportunities.
For policymakers, the persistence of borrowing activity highlights the need for a more nuanced approach to balancing inflation control with economic growth. While tightening liquidity remains a priority, the private sector’s resilience suggests that fiscal measures and structural reforms may also be required to address the root causes of inflation and economic instability.
