Policy Perplexity of the Central Bank's Interventions: An Empirical Appraisal

Abstract

Purpose: This paper investigated the impact of the CBN's intervention in the private sector as reflected in such interventions impact on the gross domestic product of the country. Methodology: The econometric methodology adopted in this study is the error correction methodology (ECM), it tested the short-run dynamics of the estimated model. The long-run test utilized was the Johansson cointegration test on the gross domestic product (GDP) as the dependent variable and inflation, credit to the private sector and the exchange rate as the explanatory variables. The data (secondary) was sourced from the CBN statistical bulletin and the banks website Findings: Findings from the study show that credit to the private sector had a positive, but insignificant impact on GDP at the 5 and 10 per cent level of significance. The prime lending rate that was used as a proxy for interest rate showed a negative but insignificant impact as was the exchange rate even at the 10 per cent level of significance. However the inflation rate had a negative, but significant impact on the gross domestic product. The increase in private sector credit administration through the various interventionist programmes of the CBN may not have translated into increased GDP growth for the period under study. Inflation was not moderated as was expected, in line with some previous research findings that were an allusion to the consequence of sub-optimality and the resultant perplexity. The CBN needs to reassess the impact of its numerous interventionist programmes to see how they can have effective traction on the economy as anticipated and adopt essential approach for Nigeria with a post oil economy in view.