IMPACT OF MONETARY POLICY RATE CHANGES ON COMMERCIAL BANK LENDING IN NIGERIA

This study looks at how changes in monetary policy affected commercial bank
lending in Nigeria from 1992 to 2024. The monetary policy rate, inflation rate,
cash reserve ratio, and liquidity ratio were used as proxies for monetary policy
attitude, while commercial bank lending was represented by total credit to the
private sector. The Central Bank of Nigeria (CBN) Statistical Bulletin was the
main source of secondary data. In terms of methodology, the study used the
Auto-Regressive Distributed Lag (ARDL) framework to determine both short- and
long-term correlations among the variables and the Augmented Dickey-Fuller
(ADF) test to determine stationarity. Both the loanable funds theory and the
monetary transmission mechanism theory served as the foundation for the
investigation, with the former serving as the primary framework. Monetary
policy has a major long-term impact on bank loans, according to empirical data.
In particular, the contractionary impact of price instability and prudential
constraints was reflected in the negative but statistically significant effects that
inflation and the liquidity ratio had on loans to the private sector. On the other
hand, bank lending and the monetary policy rate showed a strong and positive
correlation, indicating the monetary policy rate's efficacy as a policy lever in
credit distribution. Despite being positively signed, the cash reserve ratio was
statistically insignificant, suggesting a modest channel of effect. The study
comes to the conclusion that changes in monetary policy have a significant
impact on the flow of credit to the private sector, with possible trade-offs
between credit expansion and financial stability. It suggests that the CBN
maintain a balanced policy mix that protects price stability and macroeconomic
sustainability while encouraging credit expansion.