Monetary Policy Rate and Market Interest Rates in Nigeria
DOI:
https://doi.org/10.47747/icbem.v2i2.2547Abstract
The impact of Nigeria's market interest rates on the monetary policy rate (MPR) is investigated in this study. In order to maintain parsimony, we create two indexes to represent deposit and lending rates, respectively: the short-term interest rate (SINT) and the lending interest rate (LINT). The models used are threshold regression and nonlinear autoregressive distributed lag (NARDL). Monthly data from 2002:M1 to 2019:M12 are used in the study. According to the threshold regression model's results, MPR has a more substantial and larger impact on SINT and LINT over the projected thresholds of 11 and 13 percent, respectively, than it would if it were below the threshold. Additionally, results from the nonlinear ARDL model demonstrate that a drop in MPR has a negative impact on lending and short-term interest rates, whereas an increase in MPR has a favorable effect. The extent of the negative effect is negligible for LINT and statistically insignificant for SINT. This illustrates how prices are sticky downward, supporting the claim that MPR is only ineffective when modified downward. To increase the effectiveness of monetary policy, we advise the monetary authority to concentrate on banking sector reforms that eliminate downward rigidities in the impact of MPR on interest rates.
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