Banking sector credit, inflation and growth in sub-Saharan African countries

Abstract The banking sector in the past decade has been known to play a germane role in the development of any economy through its financial intermediation function. However, the financial intermediation of banks which is a major prerequisite for growth can be hindered by inflation. This study examines the effect of banking sector credit on inflation and growth in thirty-five sub-Saharan African economies for the periods 2000 and 2016. The panel vector error correction model (PVECM) technique was employed in analyzing the data. The study outcome indicates that banking sector credit affects inflation positively and growth negatively in SSA economies. Besides, the study found a bi-directional causality between banking sector credits and inflation. Hence, the government in sub-Saharan Africa countries should continue to design and implement an appropriate monetary policy to ensure optimal bank credit that will enhance growth in the region while keeping inflation level under control. The study also recommends the need for financial sector policy reform that will promote fiscal discipline, deepen the financial market, enhance credit availability, and keep inflation under control.