EFFECT OF MONETARY POLICY ON FINANCIAL SECTOR DEVELOPMENT IN NIGERIA

Abstract

The main objective of the study is to examine the effect of monetary policy on financial sector development in Nigeria from 2007-2020. Expost-facto research design was adopted for this study. Monthly time series data were extracted from the Central Bank of Nigeria Statistical bulletin based on the variables used in the study. Credit to private sector as the dependent variable, while liquidity ratio, Interest Rate and cash reserve ratio as independent proxies to measure monetary policy. The findings showed that monetary policy has significant effect on financial sector development in Nigeria. Based on the result, it was concluded that liquidity ratio, Cash reserve ratio and interest rate were significant on credit to private sector. Therefore, the effect of monetary policy on the Nigeria financial sector as an engine for controlling inflation, unemployment etc. is geared towards finding a positive and constructive role for the economy. Based on the findings, it was recommended that; the Central Bank of Nigeria should manage the interest rate 16.5% properly for attractive and affordable for investors to borrow money from the bank, Government should also minimize the 32.5 % Cash reserve ratio in order to influence the level of bank capacity to raise a volume of funds and also reduce the liquidity ratio from 30% to 25% to prevent the financial sector from folding up with keeping too much of cash idle.