Monetary Policy Rate, Interbank Rate, Savings Deposit and Inflation Rate in Nigeria: Evidence from ARDL Approach

Abstract

This study investigated the impact of monetary policy rate, interbank rate and savings deposit on inflation rate in Nigeria over the period of January, 2006 – November, 2014. To achieve the objective, an autoregressive distributed lag model was employed to estimate both the long-run and short-run models. The result of the long-run model reveals that monetary policy rate, interbank rate and savings deposit were all negatively and significantly affecting inflation rate within the studied period. In similar vein, in the short-run, monetary policy rate and interbank rates were negative and significant in determining inflation fluctuations. Though savings deposit depicts positive sign but was found to be insignificant in the short-run. As such, both long-and short-run findings were in conformity with the theoretical expectations. Therefore, the policy suggestion is that the central bank of Nigeria (CBN) should consider strengthening the use these policy instruments in controlling inflation shocks in Nigeria.

Key words: Monetary policy rate, interbank rate, savings rate, inflation rate, ARDL approach