MONETARY POLICY IMPACT ON PRIVATE SECTOR PERFORMANCE IN NIGERIA

Abstract

This paper investigates the monetary policy impact on private sector performance in Nigeria. The study applies Autoregressive Distributive Lag (ARDL) method. The ARDL Bounds test shows that a long-run relationship exists among the variables. The ADF and PP Unit Root tests on the variables show that all the variables are I(1) process, with exception of real exchange rate which is I(0) process. The study uses annual time-series data from 1981-2021 on four variables – credit to private sector as a percentage of economic growth, broad money supply, real interest rate and real exchange rage. The result shows that the broad money supply has a significant positive impact on the private sector performance both in the short run and long run. The real interest rate and real exchange rate have a significant negative impact on private sector performance both in the short run and long run. The study recommends that the government should maintain the expansionary monetary policy that allows for the injection of optimal money supply into the system. The interest rate should be reduced to allow for the flow of more financial resources from the financial sector to the private sector, thereby promoting the private sector performance. The government should halt its continued devaluation policy and embrace more diversification commitments to bridge the forex scarcity, thereby improving the value of the Naira against the value of other currencies.  Finally, the study concludes that monetary policy impact improves the private sector performance since money supply is the core determinant of monetary policy.