Impact of Selected Monetary Policy Instruments on Nigerian Banking Industry Credit to the Private Sector, 1981-2015

Abstract

This study examined the impact of selected monetary policy instruments on credit to private sector in Nigeria.Regulatory policy is a very essential element in achieving desired objectives such as promoting economic growth, achieving full employment level, reduction in the level of inflation, maintenance of healthy balance of payment, sustenance of growth in the economy, increase in industrialization and economic stability.Bank Industry Performance serving as the dependent variable and is proxied using Private sector credit, and selected regulatory instrument representing the explanatory variables, proxied using minimum rediscount rate (MRR), Liquidity ratio (LR) and cash reserve ratio(CRR).The objectives of the study were to: analyze the impact of minimum rediscount rate on credit to private sector in Nigeria, examine the impact of liquidity ratio on the private sector credit in Nigeria, and assess the impact of cash reserve ratio on private sector credit in Nigeria Banking industry. The study employed Ordinary Least Square (OLS) technique for analysis of the data covering the period of 1981 to 2015.Data for the study were collected from Central Bank of Nigeria(CBN) Statistical bulletin. Results emanating from the study are in three-folds. First, liquidity ratio had a negative but statistically insignificant impact on credit to private sector. Second, loan to depositors had a negative but statistically significant impact on credit to private sector. Third, minimum rediscount rate had a negative but statistically significant impact on credit to private sector. The study recommends that government needs to benchmark best practices in monetary policy development from those economies that are more advanced in order to develop better monetary policies that can improve the performance of the banking industry, indeed, credit to private sector especially with respect to minimum rediscount rate, liquidity ratio and loan to deposit ratio.