Nigeria’s credit to its private sector saw a modest rise in October after it slipped to an 18-month low in the previous month, signalling a rebound as monetary authorities slashed key benchmark interest rates for the first time in five years in September.

Private Sector Credit Extension (PSCE) grew 2.6 percent to N74.41 trillion in October, up from N72.53 trillion in the previous month, suggesting a renewed lending appetite to private firms, according to the latest data from the Central Bank of Nigeria (CBN).

The data further revealed that bank reserves dropped from N34.67 trillion in September to N31.58 trillion, representing an 8.9 percent month-on-month decrease, driven more by a liquidity expansion by credit flows than reserve accumulation.

At its September Monetary Policy Committee (MPC) meeting, authorities cut interest rates by 50 basis points (bps) to 27 percent, aiming to support growth as inflation continues to cool for the seventh consecutive month to 16 percent.

But the MPC, in an unexpected move, held rates steady in its November meeting while adjusting the asymmetric corridor around the Monetary Policy Rate (MPR) to +50/-450 bps, from +250/-250 bps previously, signalling a subtle shift towards easing monetary conditions even as the key rate remained unchanged.

“The cheaper access to the CBN’s lending window and the sharply lower remuneration for deposits will discourage banks from sterilising funds and could push more liquidity into the interbank market,” analysts at Lagos-based finance and research firm FMDA wrote in a note on Wednesday.

“This adjustment reduces the likelihood of sharp spikes in overnight rates, even if reserve balances tighten. Credit to the private sector may further increase in November and December.”

But the MPC, in an unexpected move, held rates steady in its November meeting while adjusting the asymmetric corridor around the Monetary Policy Rate (MPR) to +50/-450 bps, from +250/-250 bps previously, signalling a subtle shift towards easing monetary conditions even as the key rate remained unchanged.

“The cheaper access to the CBN’s lending window and the sharply lower remuneration for deposits will discourage banks from sterilising funds and could push more liquidity into the interbank market,” analysts at Lagos-based finance and research firm FMDA wrote in a note on Wednesday.

“This adjustment reduces the likelihood of sharp spikes in overnight rates, even if reserve balances tighten. Credit to the private sector may further increase in November and December.” (BUSINESS DAY)

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