Total credit to the Nigerian economy at the end of last year by the banking industry rose by 44.8 per cent year on year to N96.2 trillion according to latest credit data made available by the Central Bank of Nigeria(CBN).
According to the Money and Credit Statistics of the CBN, lending to both the government and the private sector rose from N66.398 trillion in December 2022 to N92.188 trillion at the end of December last year.
The data reflects lending by the CBN and state-owned development banks, such as, the Bank of Industry (BoI), and smaller credit extensions by other banks, such as micro-finance banks and non-interest banks.
Credit to the government rose by 36.6 per cent in the period under review, rising from N24.656 trillion as at December 2022 to N33.669 trillion at the end of December 2023, whilst lending to the private sector by 49.8 per cent to N62.519 trillion by the end of last year from N41.741 trillion which it was at the end of 2022.
Meanwhile, ahead of the February 26 Monetary Policy Committee (MPC) meeting of the CBN, analysts say they expect the monetary policy makers to continue to adopt an aggressive stance. This is also the view of the CBN governor, Dr Olayemi Cardoso who had hinted that the apex bank will continue with a tightening position as a measure to curb inflation in the country.
Projecting that inflation which is currently at 28.92 per cent will average 21 per cent this year, Cardoso had emphasised the plan to use traditional monetary policies to fight rising inflation in the country.
According to him, the apex bank has reverted to the conventional monetary policy approach with a focus on attaining price stability, which fosters sustainable economic growth for Nigeria. “Our MPC meeting on the 26th and 27th of February is also expected to review the situation and take further decisions on these important issues.
“Inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, aiming to rein in inflation to 21.4 percent in the medium term, aided by improved agricultural productivity and easing global supply chain pressures.
“The outlook for decreasing inflation in 2024 will have a profound impact on businesses, providing a more predictable cost environment and potentially leading to lowered policy rates, stimulating investment, fueling growth, and creating job opportunities. Additionally, the CBN’s adoption of an inflation-targeting framework involves clear communication and collaboration with fiscal authorities to achieve price stability, potentially leading to lowered policy rates, stimulating investment, and creating job opportunities,” he stressed.
Similarly, the International Monetary Fund (IMF) had urged the CBN to adopt an aggressive monetary policy to be able to curb the rising inflation which had made the cost of living soar above the means of many Nigerians.
Stating that aggressive monetary tightening and fiscal adjustment combined with support from development partners would be needed to restore macroeconomic stability, the IMF said: “continuing to raise the monetary policy rate until it is positive in real terms would be an important signal of the direction of monetary policy.”
On his part, Head of Financial Institutions ratings at Agusto & Co, Ayokunle Olubunmi said: “everything in Nigeria today is pointing towards higher interest rates because one of the reason there is a lot of pressure on the naira is that there is a low interest rate environment, stressing that high rates moderate economic activities.
“That is why there are high expectations that the Monetary Policy Committee of the CBN will increase interest rate by about 500 basis point at the forthcoming MPC meeting this month,” he said. However, the Nigerian government is borrowing massively and if the interest rate is high, the cost of government services will also be high.”
This, he noted, might discourage the MPC from raising the rates too high, adding that, the average interest rate for the year might hover around 18 per cent (best case scenario) and 16 per cent as the base case scenario while it is expected that interest rate will not decrease below 15 per cent.