Monetary Policy and Bank Lending in Nigeria

Abstract

This study investigated the impact of monetary variables on bank lending in Nigeria.
Previous studies in Nigeria were reviewed and some of the results of this study were in line while some
contradicted the prior works. The study made use of macroeconomic time series variables between
1980-2018. The data obtained were subjected to Autoregressive Distributed Lag (ARDL) econometric
technique. The findings of the study revealed inflation rate and interest rate have a significant negative
effect on loans and advances; the exchange rate has a positive significant effect on loans and advances
while liquidity ratio and money supply have a negative insignificant effect on loans and advances. More
so, the Granger Causality test further revealed that the inflation rate does cause the lending rate in
Nigeria while the interest rate doesn’t cause the inflation rate in Nigeria. Higher inflation rate in the
economy could lead to a reduction in the economic output. The monetary authority should, therefore,
strive to maintain a reasonable interest rate that will help to achieve an optimal level of supply of money
in circulation to avoid inflation in the economy and help in prediction of cost borrowing and lending.