Monetary Policy and Inflation Dynamics in Nigeria, Evaluating the Role of Interest Rates and Fiscal Coordination for Economic Stability

Authors

  • Moral Kuve Ihimoyan  Financial Markets Department, Central Bank of Nigeria, Abuja, Nigeria
  • Joy Onma Enyejo  Department of Business Management, Nasarawa State University Keffi, Nasarawa State, Nigeria.
  • Esther Ojoma Ali  Data Management Office, Financial Market Department, Economic Policy Directorate, Central Bank of Nigeria, Nigeria

Keywords:

Inflation, Interest Rate, Monetary Policy, Nigeria, Cost-Push Inflation.

Abstract

This paper explores the intricate relationship between interest rates and inflation in Nigeria, emphasizing their critical role in shaping monetary policy. Over the past decade, inflation has exhibited significant volatility, often driven by structural constraints and external shocks, such as the COVID-19 pandemic. Interest rates, as a key monetary policy tool, have been utilized to influence economic behavior, impacting borrowing costs and investment decisions. However, the effectiveness of this tool in curbing inflation remains a subject of debate, particularly in the Nigerian context. Using fifteen years of monthly data obtained from the Central Bank of Nigeria, this study examines the co-movement of interest rates and inflation, highlighting periods of both inverse and direct relationships. Key findings reveal that while interest rate adjustments can moderate aggregate demand, their impact on inflation is limited by supply-side constraints, including disruptions in food production and rising input costs. Notably, the study observes an anomaly in the post-COVID-19 period, where rising interest rates coincided with increasing inflation, highlighting the influence of supply chain disruptions and policy lags. This study contributes to the literature by providing data-driven insights into the dynamics of inflation and interest rates in Nigeria, emphasizing the need for complementary fiscal measures to address structural challenges. The findings highlight the limitations of interest rate policies in managing cost-push inflation and underscore the importance of integrating broader economic strategies to achieve price stability. This research offers valuable implications for policymakers, aiming to enhance the effectiveness of monetary policy in a rapidly evolving economic landscape.

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International Journal of Scientific Research in Science and Technology

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Published

2022-12-30

Issue

Volume 9, Issue 6, November-December-2022

Section

Research Articles

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How to Cite

[1]
Moral Kuve Ihimoyan, Joy Onma Enyejo, Esther Ojoma Ali "Monetary Policy and Inflation Dynamics in Nigeria, Evaluating the Role of Interest Rates and Fiscal Coordination for Economic Stability" International Journal of Scientific Research in Science and Technology(IJSRST), Online ISSN : 2395-602X, Print ISSN : 2395-6011,Volume 9, Issue 6, pp.799-832, November-December-2022.