THE IMPACT OF MONETARY POLICY VARIABLES ON ECONOMIC GROWTH IN NIGERIA

Abstract

Monetary policies are undertaken to control the magnitude, price and credit availability in order to attain internal and external balances in the nation. This can reflect in adjusting the money supply, interest rates, exchange rate and provision of credit facilities to the private sector to boost business. Its main target includes price stabilization, encouraging investment, and fostering economic expansion. This study investigated the impact of monetary policy variables on Nigeria's economic growth from 1981 to 2021 adopting autoregressive distributive lag (ARDL) model employing secondary data. Results revealed that the interest rate had a significant and positive effect on Gross Domestic Product (GDP), the impact of the credit to private sector on GDP was insignificant. Money supply and exchange rate were found to have negative, yet significant effect on GDP. Additionally, the bound test highlighted the presence of a long-term association among the variables. The study suggested based on the findings of the research that Central Bank of Nigeria should maintain an interest rate that is low enough to encourage increased investment by all and sundry; Central Bank of Nigeria should ensure that there is an increase in money supply in order to bolster economic growth; Central Bank of Nigeria should ensure that exchange rate is not overvalued in order for the domestic currency to be competitive. This will to a large extent enhance economic growth; and lastly, Central Bank of Nigeria should ensure that credits allocated should be based on economic consideration as opposed to mutual gains from private sector.