Impact of Interest Rate Corridor Framework on Money Market Rates in Nigeria
Abstract
Effective monetary policy re relies on the central bank's capacity to convey its policy signals effectively to the financial system. Based on the period between 2010 and 2025, this research examines the Nigeria's Interest Rate Corridor framework's effect on the money market rates. Using monthly secondary data and the Autoregressive Distributed Lag model, it evaluates the short-run and long-run effects of the Monetary Policy Rate and Standing Lending Facility on the Open Buy Back rate, providing evidence on the effectiveness of the IRC in monetary policy transmission. The Standing Deposit Facility was excluded due to perfect multicollinearity with the MPR. The findings confirm that the MPR is the primary anchor, exerting a significant positive long-run effect (pass-through coefficient of 0.71) on money market rates. The SLF rate also has a significant, albeit weaker, positive influence, confirming its role as a functional but secondary ceiling. The error correction mechanism reveals a reasonably quick adjustment speed, with 27.7% of disequilibrium corrected monthly. The study concludes that while the IRC framework is operative, transmission is incomplete due to structural factors like discretionary Cash Reserve Requirement debits and persistent liquidity surpluses. We recommend enhancing liquidity management and strengthening the operational roles of standing facilities to improve policy transmission.
Keywords
References
More Articles from JOURNAL OF BUSINESS AND AFRICAN ECONOMY
Author: Grace Uchechi Obi, Chiamaka Lauretta Anaike
Author: Sobere, Ugwem-oreibot Rufus, Isukul, Araniyar Chinedu , Odungweru, Kingsley, Nnana
Author: Ben, Isaiah Peter
Author: Biira, Samuel, Nwikina, Christian Gbarawae, Onyema, Joseph Iroka and, Amadi, Chukuemeka Robert
Author: Jones Ebidouwei and Prof. Andabai, Priye Werigbelegha, Ph.D
