An appraisal of the effectiveness of monetary policy in Nigeria: A study of interest rate adjustments (2000–2020).
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Background of the Study :
Monetary policy is a crucial instrument in steering economic performance, particularly in emerging markets such as Nigeria. Since 2000, the Central Bank of Nigeria has employed interest rate adjustments to manage inflation, stabilize the currency, and foster overall economic growth (Chukwu, 2023). These adjustments are designed to balance money supply and demand, thereby ensuring a conducive environment for investment and consumer spending. Over the past two decades, frequent modifications in interest rates have reflected the challenges posed by inflation volatility, liquidity constraints, and external economic pressures. The evolution of monetary policy in Nigeria also mirrors global financial trends and technological advancements in data analytics, which have enhanced the precision of policy interventions (Adetayo, 2024). However, the rapid pace of global market changes sometimes undermines the effectiveness of these measures, necessitating continuous evaluation. This study critically appraises the outcomes of interest rate adjustments over a twenty‐year span, analyzing the direct effects on macroeconomic indicators and exploring the limitations inherent in current monetary policy frameworks (Okafor, 2025).
Statement of the Problem
Notwithstanding numerous monetary interventions, Nigeria continues to grapple with persistent economic challenges. Interest rate adjustments, intended to stabilize the economy, have yielded mixed outcomes as inflation and liquidity issues remain unresolved (Chukwu, 2023). The dynamic global financial environment, coupled with internal market instabilities, often diminishes the intended impacts of monetary policy. The lack of consistency in policy implementation further complicates economic stabilization efforts, leaving a gap between the theoretical benefits of interest rate adjustments and their practical efficacy. This study addresses these issues by scrutinizing the actual impact of interest rate modifications on Nigeria’s economic stability, thereby highlighting the shortcomings and identifying areas for policy enhancement (Adetayo, 2024).
Objectives of the Study:
- To evaluate the impact of interest rate adjustments on economic stability.
- To analyze the effectiveness of monetary policy in managing inflation and liquidity.
- To identify challenges in policy execution and propose potential improvements.
Research Questions:
- How effective have interest rate adjustments been in stabilizing Nigeria’s economy?
- What challenges hinder the successful implementation of monetary policy?
- How can the current monetary framework be optimized for better economic outcomes?
Research Hypotheses:
- H1: Interest rate adjustments significantly contribute to economic stability.
- H2: Inefficiencies in policy implementation reduce the effectiveness of monetary interventions.
- H3: Enhanced coordination between monetary and fiscal policies improves economic outcomes.
Significance of the Study
This study is significant in evaluating the role of interest rate adjustments as a core component of Nigeria’s monetary policy. It provides policymakers and stakeholders with a critical assessment of successes and shortcomings in current practices. The insights drawn will inform future monetary strategies, helping to balance inflation control with economic growth. By bridging the gap between theoretical models and real-world outcomes, the study contributes to more effective economic management and sustainable development (Okafor, 2025).
Scope and Limitations of the Study:
This study is limited to the appraisal of interest rate adjustments within Nigeria’s monetary policy framework, focusing on their impact on economic stability while excluding other monetary tools.
Definitions of Terms:
– Monetary Policy: Strategies used by the central bank to regulate the money supply and control interest rates.
– Interest Rate Adjustments: Modifications in the benchmark rate to influence economic activity.
– Economic Stability: The condition of steady growth, controlled inflation, and robust financial systems.
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