IMPACT OF MONETARY POLICY ON INFLATION IN NIGERIA

Abstract

This study examined the impact of monetary policy on inflation in Nigeria. The inflation rate was employed as the dependent variable against the explanatory monetary policy variables- Log of GDP, Interest Rate, Exchange Rate, Monetary Policy Rate, Broad Money Supply. The time series data used spanned the period from 1990 to 2020. The study adopted the Unit Root test, Co-integration Test, Granger Causality Test. The result of the study revealed that interest rate has a significant effect on inflation rate in Nigeria which implies that interest rates serves as one of the major tool of controlling inflation rate and an increase in interest rate escalate inflationary pressure. Finding also revealed that, Monetary Policy Rate, Broad Money Supply, Exchange Rate, Log of GDP have significant effect on inflation rate that is the economy grows and inflation increases. The study recommends that the Monetary authority should adopt adequate indirect instruments for the purpose of controlling the volume of money in circulation for effective and efficient control of inflation rate in Nigeria. The money market and its instruments should be adequately developed for the purpose of making it an effective control mechanism of inflation in Nigeria.