The Effect of Interest Rate Policy on Consumer Credit in Nigeria

Interest rate policy constitutes one of the most direct monetary tools through which the Central Bank of Nigeria influences the behaviour of lenders and borrowers across the economy, with particular effects on consumer credit demand and access. This study examines the effect of the Central Bank of Nigeria's monetary policy rate changes on consumer credit volumes in Nigeria between 2018 and 2023. Secondary data are sourced from the Central Bank of Nigeria's monetary policy communiques, credit data from the Consumer Credit Corporation of Nigeria, and aggregate lending statistics from the National Bureau of Statistics. The study applies an error correction model to establish the short-run and long-run relationship between the monetary policy rate, prime lending rate, and volumes of personal and retail loans. Theoretical grounding is provided by the loanable funds theory and the Keynesian interest rate transmission mechanism. The analysis also considers the introduction of the consumer credit framework by the Federal Government in 2023 as a structural shift in the consumer lending environment. Existing literature confirms that high interest rates dampen consumer credit demand, though the effect is mediated by income levels, loan tenor, and financial institution risk appetite. This study contributes evidence from the Nigerian context on the efficacy of interest rate transmission to the household credit market, with implications for Central Bank of Nigeria policy communication and the nascent consumer credit industry. Keywords: interest rate, consumer credit, monetary policy, Central Bank of Nigeria, lending