Nexus Between Monetary Policy and Bank Credit: New Insight from Nigeria
The study examines the role of monetary policy on bank credit in Nigeria using time series data over the period of 1990–2016. We applied Autoregressive Distributed Lag (ARDL) approach proposed by Pesaran, Shin and Smith (2001). We find that monetary policy (monetary policy rate and liquidity ratio) retards bank credit (bank credit to private sector and small and medium scale enterprises) while money supply stimulates bank credit in Nigeria. Based on this result, we conclude that monetary policy impedes bank credit in Nigeria. It is therefore recommended that monetary authorities should reduce monetary policy rate so as to reduce cost of borrowing in order to increase domestic credit to private sector to boost investment and output.
