Nigeria’s private sector borrowed N1.89 trillion in November despite persistent interest rate hikes

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.

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.

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.

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.

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.

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.