An assessment of monetary policy transmission in Nigeria: Evidence from interest rate adjustments by the CBN (2000–2020)
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Background of the Study
Monetary policy transmission is the process through which policy decisions by a central bank affect the economy, influencing variables such as inflation, investment, and economic growth. In Nigeria, the Central Bank of Nigeria (CBN) has implemented a range of interest rate adjustments between 2000 and 2020 to manage inflation and stimulate economic activity. These adjustments are central to the bank’s monetary policy framework, aiming to influence credit availability, consumer spending, and investment decisions (Ibrahim, 2023). The transmission mechanism operates through various channels, including the banking sector, asset markets, and exchange rate fluctuations, thereby impacting overall economic performance. However, the effectiveness of monetary policy transmission in Nigeria is often challenged by structural inefficiencies, high levels of non-performing loans, and external economic shocks (Chukwu, 2024). This study examines the transmission process of monetary policy by analyzing interest rate adjustments made by the CBN and their subsequent impact on key macroeconomic indicators. Through a combination of quantitative analysis and policy review, the research aims to provide insights into the efficacy of current monetary policy tools and suggest measures for improving their transmission in Nigeria (Balogun, 2025).
Statement of the Problem
Despite ongoing monetary policy interventions by the CBN, the transmission of these policies to the real economy remains suboptimal. Interest rate adjustments have not consistently translated into expected improvements in credit flow, investment, and economic growth (Ibrahim, 2023). Structural challenges such as banking inefficiencies and market imperfections limit the impact of monetary policy, leading to persistent inflation and economic volatility (Chukwu, 2024). The gap between policy adjustments and their economic outcomes raises critical questions about the effectiveness of current monetary tools. This study seeks to assess the transmission mechanism of monetary policy in Nigeria, with a focus on interest rate adjustments, and to identify the factors that impede their full effectiveness, thereby providing recommendations for policy enhancement (Balogun, 2025).
Objectives of the Study
1. To assess the impact of CBN interest rate adjustments on macroeconomic indicators.
2. To identify factors affecting the transmission of monetary policy.
3. To recommend strategies to enhance policy effectiveness.
Research Questions
1. How do interest rate adjustments by the CBN affect the economy?
2. What factors hinder effective monetary policy transmission?
3. What policy measures can improve the transmission mechanism?
Research Hypotheses
1. CBN interest rate adjustments significantly influence economic activity.
2. Structural inefficiencies reduce the effectiveness of monetary transmission.
3. Policy reforms can enhance the impact of monetary interventions.
Significance of the Study (100 words)
This study is significant as it evaluates the effectiveness of monetary policy transmission in Nigeria through the lens of interest rate adjustments by the CBN. The findings provide critical insights for central bankers and policymakers, offering evidence-based recommendations to refine monetary tools and improve economic stability. By addressing structural challenges and enhancing policy transmission, the research contributes to a more resilient financial system and sustainable economic growth in Nigeria.
Scope and Limitations of the Study
The study is limited to analyzing monetary policy transmission in Nigeria via interest rate adjustments by the CBN. It focuses on macroeconomic indicators and excludes other monetary tools or external factors.
Definitions of Terms
• Monetary Policy Transmission: The process by which central bank actions affect the economy.
• Interest Rate Adjustments: Changes in the benchmark rate set by the central bank to influence economic activity.
• Central Bank of Nigeria (CBN): The institution responsible for monetary policy in Nigeria.
