Monetary Policy Rates and Liquidity Decisions of Deposit Money Banks in Nigeria
Vol 4 Issue 2
This study analyses the effect of monetary policy rates on banks’ liquidity decisions within the Autoregressive Distributive Lag framework using aggregate time series data. Three monetary policy rates are considered: treasury bills rate, monetary policy rate and cash reserve ratio, while banks’ liquidity decision is proxied by liquidity ratio. The sample comprises yearly data from 1981 to 2018. The results show that treasury bills rate, monetary policy rate and cash reserve ratio all jointly have no statistically significant impact on banks’ liquidity ratio. However, individually, while both treasury bills rate and monetary policy rate have no significant effect on banks’ liquidity ratio, the effect of cash reserve ratio is positive and significant at 5% level. The relationships between monetary policy rates and banks’ liquidity ratio have no lagged effects.
