International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

The Impact of Monetary Policy on Bank Credit Creation in Nigeria: (1980 – 2010)
Agbonkhese, Abraham Oni; Asekome, Mike Ozemhoka

This study attempts to assess the impact of monetary policy on bank credit creation in Nigeria. Using the Ordinary Least Square (OLS) method of econometric analysis, the study covers the period from 1980 to 2010. The results of the analysis indicate that there was a positive linear relationship between total credit creation and the explanatory variables consisting of total deposits and treasury bills rate while the reserve requirement ratio and interest rate had a negative relationship with total credit creation. Thus, any monetary policy by the monetary authority to control credit that emphasizes on reserve requirements could not be effective as the banks could afford to raise and keep substantial deposits as reserve contrary to the actions of the monetary authority. The study recommends that the Central Bank of Nigeria (CBN) should not rely too much on reserve requirement as a monetary policy on credit creation but should rather emphasis more on the monetary policy rate (MPR) that could affect the lending rate as well as the open market operations while commercial banks could increase credit creation by reducing lending rates through more cost effective strategies for sourcing of deposits to fund their credit creation as high lending rates would appear to reduce the demand for credit in Nigeria

Full Text: PDF