Monetary Policy and Net Domestic Credit: A Time variant study from Nigeria

This study examined the effects of monetary policy on net domestic credit in Nigeria from 1990- 2023. Time series data were sourced from Central Bank of Nigeria statistical bulletin. Multiple regression models were specifically estimated to ascertain the relationship between monetary policy and net domestic credit. The study modelled net domestic credit as the function of liquidity ratio; cash reserve ratio, open market operation, monetary policy rate and Treasury bill rate. The study employed the Auto-Regression Distributive Lag (ARDL) methodology in determining existence of the short-run and long-run relationships. The study found that that cash reserve ratio led to a decline in net domestic credit by about 4.9 in the long run. Treasury bill rate, liquidity reserve, cash reserve ratio and open market operation have negative relationship with net domestic credit. Treasury bill rate was found to have a positive effect on net domestic credit. From the ARDL results, the study concluded that there is significant relationship between liquidity ratio and net domestic credit. There is significant relationship between cash reserve ratio and net domestic credit in Nigeria. There is significant relationship between open market operation and net domestic credit. There is no significant relationship between monetary policy rate and net credit domestic credit in Nigeria, there is significant relationship between Treasury bill rate and net domestic credit in Nigeria and no significant relationship between liquidity ratio and net domestic credit. We recommended that commercial bank lending objectives should be optimally implemented within the ambit of the monetary policy measures, monetary policy rate. Monetary policy and monetary policy variables such as open market operation, should answer the objective of bank lending to the real sector of the economy. That the liquidity ratio maintained by the commercial banks be essentially adjusted from time to time by the monetary authorities. Keywords: Monetary Policy, Net Domestic Credit, Monetary Policy Rate, Open Market