Indirect Monetary Policy Instruments and Poverty Reduction in Nigeria: An Empirical Evidence from Time Series Data

Abstract

The paper examines the effectiveness of indirect monetary policy instruments in reducing poverty in Nigeria using a multiple regression model as well as time series data covering the period 1986 to 2012. The Ordinary Least Squares (OLS) technique was used in the estimation of the regression model. The OLS regression result revealed that interest rate (INTR), banking sector’s credit to the economy (BSCE), bank reserve requirement (BARR), bank liquidity ratio (BLQR), central bank discount rate (CBDR) and inflation rate (INFR) could not significantly impact on poverty rate except money supply (MS), real gross domestic product (RGDP), unemployment rate (UNEMPR) and balance of payment (BOP). A major implication of this result is that indirect monetary policy instruments alone were grossly inadequate measure/policy to reduce poverty in Nigeria during the period under review. The paper therefore recommends that in addition to combining monetary policy with other economic policies (fiscal, income policies) etc to fight poverty in Nigeria, the monetary authorities as a matter of obligation must strengthens banking rules and regulations to enhance compliance with CBN’s rules and directives by commercial banks in order to further facilitate and enhance the effectiveness of monetary policy instruments in the economy in order to influence poverty reduction in Nigeria.