EVALUATING MONETARY POLICY EFFECTIVENESS: INTEREST RATE PASS-THROUGH IN NIGERIA

Abstract

Interest rate pass-through, the transmission of central bank policy rate changes to retail bank lending and deposit rates, is a crucial indicator of the effectiveness of monetary policy. This study examines the interest rate pass-through mechanism in the context of Nigeria's monetary policy framework. In December 2006, Nigeria adopted a new monetary policy approach, replacing the minimum rediscount rate with the monetary policy rate and introducing an asymmetric corridor around this rate. The primary aim was to target the overnight rate and enhance monetary policy effectiveness. This research explores the relationship between the policy rate and retail bank lending and deposit rates, with a focus on the interbank market. It assesses the extent to which changes in the policy rate influence these rates in the short term. A comprehensive analysis of interest rate pass-through is essential for understanding the efficacy of Nigeria's monetary policy in controlling inflation, stimulating economic growth, and maintaining financial stability. Our findings contribute to the ongoing discourse on monetary policy in Nigeria, shedding light on the interplay between central bank actions and retail banking rates. Understanding interest rate pass-through is vital for policymakers and financial institutions seeking to navigate the intricacies of monetary policy and achieve macroeconomic stability