Despite higher interest rates, government credit drops to its lowest point in a year.
Despite higher interest rates on government securities, commercial banks’ credit to the government fell to a one-year low in the first quarter of 2024. The decline, totaling 28.8 percent to N19.59 trillion in March 2024 from N27.53 trillion in March 2023, reflects the tightening monetary policy stance of the Central Bank of Nigeria (CBN), including increases in the Cash Reserve Ratio (CRR) and the Monetary Policy Rate (MPR).
Similarly, loans granted by banks to the private sector decreased by 11.93 percent to N71.21 trillion by the end of March 2024 compared to N80.86 trillion in February 2024. This reduction is attributed to macroeconomic challenges affecting purchasing power and tax payments, along with banks’ preference for investing in government securities due to their attractive yields.
The CBN’s tightening measures, including a 600 basis points increase in the MPR to 24.75 percent in March 2024, were aimed at addressing inflation, which rose to 33.2 percent in March. Additionally, the CBN raised the CRR and adjusted the asymmetric corridor around the MPR to manage liquidity in the financial system. These measures, while addressing inflation, also impacted credit provision to both the government and the private sector.
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