Impact of Monetary Policy Rate and Cash Reserve Requirement on Commercial Bank Lending in Nigeria
Year: 2026
Type: article
Abstract: This study examines the impact of two key monetary policy instruments—the Monetary Policy Rate (MPR) and Cash Reserve Requirement (CRR)—on commercial bank lending in Nigeria using monthly time-series data from January 2006 to December 2024. Employing the Vector Error Correction Model (VECM) following confirmation of cointegration among variables, the study finds that both instruments exert statistically significant negative impacts on credit to the private sector. The CRR emerges as the most powerful instrument with a long-run coefficient of -0.0456, indicating that a one percentage point increase reduces lending by approximately 4.56 percent. The MPR demonstrates a coefficient of -0.0234, confirming its effectiveness as a signaling mechanism. The Error Correction Term of -0.1234 suggests that approximately 12.34 percent of disequilibrium is corrected monthly, requiring about eight months for full adjustment. Granger causality tests establish unidirectional causality from both instruments to lending, confirming their exogenous nature. These findings validate the bank lending channel of monetary policy transmission in Nigeria and provide empirical support for the Central Bank of Nigeria's use of these instruments in credit control.
Institution: The Federal Polytechnic Offa
Language: English
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W7220103142