IIARD International Institute of Academic Research and Development

IIARD International Journal of Economics and Business Management (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 3 NO. 10 2017

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Effect of Changes in Nigeria Monetary Policy Rate on Interest Rates

Aliyu, Saidu Bello, Saidu, Shehu Ahmed, & Zubair, Abdullahi Umar and Beki Dawood

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Abstract

Since the monetary authority adopted indirect form of monetary policy formulation in 1993 (P N Okafor) monetary policy rate (MPR) has being one of the monetary tools used by the Central Bank of Nigeria in setting targets and direction of other rates as well as other macroeconomic aggregates. The MPR is expected to communicate the stance of monetary policy and acts as a guide for all other market interest rates. In Nigeria however, there seem to be disconnection between MPR and the direction of interest rates. Since 2016 the Monetary Policy Committee (MPC) had retained MPR at 14% for a long period but stability in Monetary Policy Rate is barely reflected in the movement of short term and long term interest rates. The objective of this is to find out whether a change in MPR has effect on interest rates in Nigeria. The study makes use of CBN data from 2006-2016 to examine the effect of Monetary Policy Rate on short term and long term rates in Nigeria. The choice of the scope of the study lies in examining the response of interest rates to changes in MPR. Result obtained from this study will be used to gauge the effectiveness of MPR in an economy like Nigeria where financial infrastructure is not fully developed. The study concludes that the MPR influences the 91-Day Treasury Bills rate to the greatest extent followed by the Inter-Bank Call rate.

keywords:

Monetary Policy Rate, Interest Rates, Monetary Policy, Ordinary least squares, Principal Component Regression, Ridge Regression.

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