Central Bank Policy and Private Sector Funding in Nigeria: A Multi-Variant Study.
Vol.5 Issue 1
This study examined the effect of Central Bank policy rates on private sector funding in Nigeria. The purpose of the study was to examine the extent to which monetary policy affect private sector funding in Nigeria. Time series data were sourced from Central Bank of Nigeria Statistical Bulletin from 1985-2018. Credit to private sector, credit to core private sector and credit to small and medium scale enterprises sector were used as dependent variables while monetary policy rate, treasury bill rate, cash reserve ratio as independent variables. The study employed multiple regression models to estimate the relationship that exists between monetary transmission channels and private sector funding in Nigeria. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The empirical findings revealed that Central bank policy rates explain 64 percent and 59.9 percent of the variation in credit to private sector and credit to core private sector within the model and 18.5 percent of the variation in bank lending to small and medium scale enterprises sector. The study concludes that Central Bank Policy rates has significant relationship with credit to private sector, credit to core private sector and no significant relationship with credit to small and medium scale enterprise sector. The study recommends the need for monetary authorities to stabilize Central bank policy rates and deposit money banks should reduce lending rate to encourage investment borrowings.
