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IMPACT AND EFFECTS OF THE MONETARY POLICY RATE ON INTEREST RATES IN NIGERIA
ABSTRACT
Monetary policy rate has remained a major potent monetary policy tool used by monetary authorities in setting targets and direction of other rates and in driving the movement of other macroeconomic aggregates in both developed and developing countries. In Nigeria however, the Central Bank has kept monetary policy rate stable at 12 percent between October 2011 and September 2012 but stability in monetary policy rate is hardly reflected in the movement short term and long term interest rates. The aim of this study is to use the multivariate Vector Autoregressive Model to analyze the effects of monetary policy rate on other rates in Nigeria. The study makes use of monthly data from M1:2007 to M9: 2012 to evaluate the cause effect relationships between monetary policy rate and short term and long term rates in Nigeria. The choice of the scope of the study lies in examining the response of interest rates to monetary policy shock since the 2007-2008 global economic crises. Result obtained from this study will be used to track the relative effectiveness of monetary policy in an emerging market where money market instrument is not fully developed.
KEYWORD: Monetary Policy, Monetary Policy Rates, Interest Rates.