MONETARY POLICY AND ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL ANALYSIS OF POLICY TRANSMISSION AND MACROECONOMIC PERFORMANCE

Abstract

T his study examines the effect of monetary policy on economic growth in Nigeria over the period 1994–2024. The persistent macroeconomic challenges facing the Nigerian economy, including inflationary pressures, exchange rate instability, and fluctuating output growth, have raised concerns regarding the effectiveness of monetary policy as a tool for promoting sustainable economic development. The study specifically investigates the influence of the Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR), and Bank Interest Rate (BINT) on Real Gross Domestic Product (RGDP). Annual time-series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and other official publications were analyzed using descriptive statistics, the Augmented Dickey–Fuller (ADF) unit root test, correlation analysis, and the Ordinary Least Squares (OLS) estimation technique. The empirical findings reveal that all variables were stationary after first differencing, indicating integration of order one. The regression results indicate that the Monetary Policy Rate and Cash Reserve Ratio exert positive and statistically significant effects on economic growth, whereas the Bank Interest Rate exhibits a negative and statistically significant effect on Real Gross Domestic Product. The model explains approximately 67 percent of the variations in economic growth, suggesting that the selected monetary policy instruments play a substantial role in influencing macroeconomic performance in Nigeria. The study concludes that monetary policy remains an important instrument for stimulating economic growth when implemented effectively and consistently. It recommends that the Central Bank of Nigeria adopt a balanced monetary policy framework that promotes investment through moderate interest rates while maintaining adequate liquidity and price stability. Furthermore, monetary policy should be effectively coordinated with fiscal policy and broader structural reforms to enhance sustainable economic growth and macroeconomic stability in Nigeria.