The Relationship between Monetary Policy Rate (MPR) and Banking Rates: Evidence from Regression and Multivariate Causality Analysis

  • BJ Tsenkwo
  • DT Longdu'ut
Keywords: Monetary policy rate, Multivariate causality, Relationships, Banking rate

Abstract

Government in a bid to regulate the affairs of the economy would always use MPR as one of its instruments; which is an interest rate at which CBN lends to commercial banks and other clients. The execution of one of these instruments at time causes others to response either positively or negatively. In order to find out some of these reactions, this research was undertaken to establish the action of the changed in government's Monetary Policy Rate on other instruments like, bank savings rate, Bank lending rate, maximum lending rate and the host of others. For a better and more liability, this research uses both descriptive statistics and econometrics analysis to subject the raw data from secondary source to series of refining like Unit Root Test, Ordinary Least Square Test, Stability Test, and Granger causality test. These tests were conducted, using Granger causality test, to know the direction of their relationships and how they are caused. The finding revealed that almost all the variables, with the exception of bank savings rate, exhibit a strong sign of co-moving in the long run with the tendency of converging. The research revealed that there exist unidirectional causality between monetary policy rate and bank lending rate; bank lending rate and bank savings rate. And there exist a bi-directional causality between monetary policy rate and bank savings rate. The research uses e-view statistics package to analyse the data. The research concludes that the relationships between Monetary policy rate and other monetary rates is determined by what the monetary authority wants to achieve and this indicates the directions of the relationships at times. However, the research suggests that the monetary authority should always try to enforce its policies on the commercial banks rather than using persuasion to achieve the desired goals. There should be continuity in policy of the authority rather than allow it go with each Governor of the authority (CBN).

Key words: Monetary policy rate, Multivariate causality, Relationships, Banking rate

Published
2014-08-13
Section
Articles

Journal Identifiers


eISSN: 2227-5452
print ISSN: 2225-8590