Effects of Monetary Policy Instruments on Lending Behaviour of Quoted Deposit Money Banks in Nigeria

October 3, 2018


Monetary policy involves among others the utilization of monetary policy instruments to regulate the value, supply as well as cost of money in nation’s economy. Although there are many monetary policy instruments used by the Central Bank of Nigeria, this study however examines the effects of conventional monetary policy instruments in the form of Cash Reserve Ratio (CRR), Monetary Policy Rate (MPR) and Open Market Operation (OMO) on the lending behaviour of quoted Deposit Money Banks (DMBs) in Nigeria. Ex-post facto and causal research designs are used on data collected from the annual reports of the sampled DMBs for the period spanning through 2007 to 2016. Panel regression was used on the panel data collected and it was found from the random effect model that Cash Reserve Requirements, Open Market Operation and Deposit Ratio were negatively related to lending behaviour of banks with statistical insignificance. However, a significant negative effect of Monetary Policy Rate on Lending Behaviour was found while Exchange Rate was found to have a significant positive effect on lending behaviour of quoted DMBs. The study concludes that quoted DMBs’ ability to grant more credit is not significantly influenced by CRR, OMO and Deposit mobilization. However, lending behaviour of the DMBs significantly reduces as MPR increases, but increases as Exchange Rate increases. The study recommends that, CBN should reassess the use of CRR and OMO as the instruments of monetary policy if the objective of the policy is to influence lending of the quoted DMBs. Monetary policy Rate should also be reviewed to an optimal level that would ensure cost of borrowing supports reasonable access to finance by productive sectors of the economy.


Monetary Policy, Open Market Operation, Cash Reserve Ratio, Monetary Policy Rate, Exchange Rate, Loans & Advances and DMBs


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Author Details

GARBA Salisu Balago

AKWE, James Ayuba

Dang, Y. Dagwon