Abstract

In auspicious macroeconomic setting, monetary policy should increase credit availability, particularly in the real sector, to spur investment; however, this is not the case in the Nigerian economy. In this study, the impact of monetary policy on bank credit and investment in Nigeria from 1981 to 2020 was investigated. The central bank of Nigeria’s statistics bulletin was the source of the data used in this study. Using the data gathered, the study used Auto-Regressive Distributed Lag (ARDL). The study’s findings indicate that bank loans and investment have a long-term association with monetary policy. In addition, it was observed that while bank loans to the private sector and the liquidity ratio had short-term negative effects on investment, the cash reserve ratio, monetary policy, money supply, and inflation rate had long-term positive effects on investment. According to the study’s findings, monetary policy significantly and favorably affects bank credit and investment in Nigeria. The study suggested that the CBN adjust the monetary policy rate by reducing the cash reserve ratio, which will increase liquidity and allow the banks to discharge their credit capacity with the aim of improving investment in Nigeria. Monetary authorities should view credit as a major channel for implementing monetary policies, and this urgent adjustment should be made.

Keywords: Auto Regressive Distributed Lag (ARDL), Money Supply, Liquidity Ratio, Inflation, Bank Credit.

JEL Classification: O11, O16, 023, O42.

Cite as: Olonila, A., Amassoma, D. & Babatunde, B.O. (2023). Impact of Monetary Policy on Credit and Investment in Nigeria (1981 – 2020). Financial Markets, Institutions and Risks, 7(1), 136-144. https://doi.org/10.21272/fmir.7(1).136-144.2023

This work is licensed under a Creative Commons Attribution 4.0 International License

References

1. Nasko, A. M. (2016). Impact of monetary policy on the economy of Nigeria. Pyrex Journal of Business and Finance Management Research, 2(10), 163-179. [Link]
2. Adebusuyi, B. S. (2014). Effects of monetary policy on the real economy of Nigeria: A disaggregated analysis. Occasional Paper, 54, 9-65. [Link]
3. Adekunle, P. A., Yaaba, B. N., Stephen, S. A., Ogbuehi, F., Idris, A., &Zivoshiya, P.B. (2018). Monetary policy transmission in Nigeria: How important is asset prices channel? Microeconomics and Macroeconomics, 6(3), 55-66. [Link]
4. Ademokoya, A. A., Sanni, M., Oke, L. A., &Abogun, A. (2020). Impact of Monetary Policy on Bank Credit in Nigeria. Journal of Accounting Research Organization and Economics, 3(3), 196-205. [Link]
5. Ajayi,  F. O., &Atanda,  A.A. (2012). Monetary policy  and bank performance  in Nigeria: A two-step cointegration approach. African Journal of Scientific Research, 9(1), 462-476. [Link]
6. Amassoma, D., Nwosa P. I., & Olaiya, S. A. (2011).An appraisal of monetary policy and its effect on macroeconomic stabilization in Nigeria. Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 2 (3), 232-237. [Link]
7. Bhat, S. A., Kamaiah, B., & Acharya, D. (2019). Examining the differential impact of monetary policy in India: A policy simulation approach. Journal of Economics, Finance, and Administrative Science. [CrossRef]
8. Bhuiyan, R. (2008). The effects of monetary policy shocks in a small open economy: A Structural VAR Approach. Queen’s University, Kingston, Ontario, Canada. [Link]
9. Blinder, A. S. (1987). Credit rationing and effective supply failures. The Economic Journal, 97, 327-352. [Link]
10. Emenike, K. O. (2016). How does monetary policy and private sector credit interact in a developing economy?Intellectual Economics10, 92–100. [Link]
11. Ezeibekwe, O. F. (2020). Monetary policy and domestic investment in Nigeria: The role of the inflation rate. Economics and Business, 34, 139–155. [CrossRef]
12. Goher, F. (2012). Joint impact of investment (public and private) on the economic growth of Pakistan: (Co-Integration Approach). International Journal of Humanities and Social Science, 2(15), 171-176. [Link]
13. Kwapil, C., &Scharler, J. (2010). Interest rate pass-through, monetary policy rules and macroeconomic stability. Journal of International Money and Finance, 29(2), 236-251. [Link]
14. Léonce N. (2016). Implications of monetary policy for credit and investment in Sub-Saharan African Countries.Journal of African Development, 18(2),1–18. [Link]
15. Onouorah, C. A., Shaib, I. O., &Ehikioya, J. O. (2011). Long run relationship between private investment and monetary policy in Nigeria. Research Journal of Finance and Accounting, 2(6), 30-39. [Link]
16. Rafiq, M. S., &Mallick, S. K. (2008). The effect of monetary policy on output in EMU3: A sign restriction approach. Journal of Macroeconomics, 30, 1756–1791. [Link]
17. Udeh, S. N. (2015).  Impact of monetary policy instruments on profitability of commercial banks in Nigeria: Zenith bank experience. Research Journal of Finance and Accounting, 6(10), 190-206. [Link]
18. Wang, K., & Lee, Y. (2009). Market volatility and retail interest rate pass through. Economic Modelling, 26, 1270-1282. [Link]