IIARD International Institute of Academic Research and Development

Journal of Accounting and Financial Management (JAFM )

E-ISSN 2504-8856
P-ISSN 2695-2211
VOL. 11 NO. 1 2025
DOI: 10.56201/jafm.vol.11.no1.2025.pg79.91

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Navigating Financial Stability Through Monetary Policy Instruments in Nigeria

Umbe, Eddy Ayekurobotaregha Opudu, Derek Okubokeme

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Abstract

This study examines the dynamic effects of monetary policy on financial stability in Nigeria from 1981 to 2022. The study draws upon the "leaning against the wind" theory to explore how variables such as financial stability, exchange rate, interest rate, and money supply interact within the Nigerian economy. Data for the analysis were collected from Statistical Bulletin of “Central Bank of Nigeria” (CBN) and the National Statistics Bureau. Using the Ordinary Least Squares (OLS) technique, the findings reveal that interest rate has positive non- significant effect on financial stability, the exchange rate has significant negative effect, suggesting that the fluctuations in exchange rates may destabilize the financial system. While money supply on the other hand, has positive significant influence on financial stability, indicating a critical role in economic management and financial stability in Nigeria. The study concludes that monetary policy significantly impacts financial stability, with the exchange rate channel playing a pivotal role in ensuring stability.

keywords:

Exchange rate, Financial Stability, Financial Deepening, Monetary Policy

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