ASSESSING THE EFFECTIVENESS OF NIGERIA'S MONETARY POLICY IN MANAGING THE LIQUIDITY CRISIS: POST-COVID-19 IMPLICATIONS

Abstract

The study assessed effectiveness of Nigeria's monetary policy in managing the liquidity crisis
after COVID-19. Ex-post facto research design was used and the study covered the period of
three years from 2021 to 2023 on monthly basis and this constitute thirty-six observations.
The interest rate was captured using maximum lending rate, monetary policy rate using the
Central Bank monetary policy rate, the liquidity was measured using loan to deposit ratio
and the credit availability was measured using credit to private sector. Data were sourced
from Central Bank statistical bulletin. The study adopts vector autoregressive and
Autoregressive distributed lag (ARDL) as the estimation technique. It was explicit from the
findings that monetary policy rate has positive and significant impact on liquidity in the short
run and long run. It was shown from the estimation that interest rate has positive impact on
liquidity in the long run but it was found that interest rate has negative but insignificant
impact on liquidity in the short run. It was explicit from the estimation that the monetary
policy rate has negative impact on credit availability in the long run but in the short run, it
has positive but insignificant impact on credit availability in the short run. Interest rate has
positive impact on credit availability in the short run and long run. The study concluded that
increase in monetary policy rate may attract better return on savings and this invariably
could increase the liquidity of the banks. More so, interest rate has both positive and negative
impact on liquidity. The study recommended that the central bank of Nigeria should
gradually adjust monetary policy rate in order to strike a balance between the liquidity
contraction and inflationary pressure in the economy. Also, the CBN should intensify effort
to monitor changes in lending practice to prevent excessive tightening of credit conditions in
the long run.