Monetary Policy And Financial Development In Nigeria

Abstract

The financial growth and developmental stride of Nigeria can only be achieved if there is consistency in the monetary policies and thriving of its elements including the interest rate. This study investigated the monetary policies and financial development in Nigeria between 2004 and 2023. The specific objectives include to examine the impact of interest rates on Nigeria’s financial depth; to assess the impact of interest rates on Nigeria’s financial stability; to evaluate the impact of interest rates on Nigeria’s access to finance; and to determine the impact of interest rates on Nigeria’s efficiency of the financial system. historical data of yearly from the World Development Indicator (WDI) for the data set of interest rates, that is, Broad Money (in terms of GDP) and Deposit Interest Rate, while, the data for financial stability, depth, access, and efficiency were obtained from the Global Financial Development, which are Bank Z-Score, Domestic credit to the private sector, Bank Branches per 100,000 adults, and Bank net interest margin respectively. Data analysis was done using descriptive statistics and inferential statistics of unit root tests, co- integration test, panel cointegration, estimation of panel cointegration regression while dynamic fixed effect model is applied to get the impact. The conclusion from this study shows that there is a significantly positive impact of BZS on the DIR indicating about 15% impact as reiterated by its 15.9% coefficient value while the DCPGDP, shows an insignificant positive impact on the DIR reinforced by its coefficient value of about 1.2%. For the BBA, it shows a positively low impact on DIR with coefficient of about 4% while the BNIM negatively impact the DIR shown by its coefficient of -24.5%. This study recommended that deepening financial sector growth is necessary to boost the monetary transmission mechanism meaning that it is important to acknowledge the lag in the effects of interest rate modifications on financial stability, hence, requiring a measured approach to assess the efficacy of policy alterations on the nation's overall financial stability.