Economic and Financial Review


Central Bank of Nigeria


Interest rate, Private sector credit, Monetary policy, Economic growth, Vector Error Correction


This study estimated the interest rate elasticity of private sector credit in Nigeria using the Vector Error Correction mechanism. The variables specified included real private sector credit. real GDP. Prime and maximum lending rates, exchange rate, 9)-day Treasury bill rate, inflation rate and all share index of the Nigerian Stock Exchange. The data utilised covered the period: 1998 Q1 to 2013 Q4. Granger causality tests were performed, and the co-integration analysis of the Johansen system-wide procedure was employed. The results indicated thot private sector credit was fairly interest inelastic in terms of both maximum and prime lending rates. The estimated interest rote elasticity for prime borrowers was -0.27 per cent implying that a one per cent increase in the prime lending rate would lead to 0.27 per cent drop in private sector credit growth. The short-run vector error correction mode! estimates shows that approximately 1.8 per cent of disequilibrium is corrected each quarter by changes in the private sector credit, Given the inelastic nature of private sector credit with respect for all measures of interest! rate, but high elasticities with respect! to income and inflation indices, the efforts of monetary authorities should be directed of ensuring the availability of credit, maintaining price stability and de-risking the business environment in collaboration with the fiscal authority.

Author Bio

The authors are staff of the Monetary Policy Department, Central Bank of Nigeria.

Publication Title

CBN Economic and Financial Review





Recommended Citation

Bamidele, A., Oji, K. O., Smith, E. S. & Jimoh, L. S. (2015). Interest Rate Elasticity of Private Sector Credit in Nigeria, CBN Economic and Financial Review. 52(4), 1-29.



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