ABSTRACT

The major objective of this study is to analyze the effect of monetary policy on inflation and money supply in Nigeria within the period of 1986-2016. Specifically, we examined the effect of exchange rate, interest rate and net domestic credit on statutory liquidity ratio in Nigeria, as well as determined the effect of exchange rate, interest rate and net domestic credit on cash reserve ratio in Nigeria. Data were collected through secondary sources mainly from central bank statistical bulletin and were analyzed using multiple regression analyses with EVIEW statistical package. The result of analysis shows that there is significant effect of exchange rate, interest rate and net domestic credit on statutory liquidity ratio. However, exchange rate, interest rate and net domestic credit shows no significant effect on cash reserve ratio. The study recommends that monetary authority should re-evaluate these policies to suite the present macroeconomic challenges in Nigeria. Nigeria should develop and strengthen every sector that contributes to economic growth of Nigeria. The monetary authority should not only aim at reducing inflation, but also ensure that the real economy is stabilized. Nigeria should diversify their resource base and not solely depending on oil as its major export earner. On the basis of the findings the researcher concludes that monetary policy in Nigeria has not done well in fighting inflation and stabilizing the economy of Nigeria and as such the policies should be reviewed to solve prevailing macro economic problems of Nigeria.