IMPACT OF MONETARY POLICY ON COMMERCIAL BANKS’ SUPPLY OF AGRICULTURE CREDIT IN NIGERIA

Authors

  • Umeh Anthony Chinedu
  • Ugwo Callistus Ezekwe
  • Ochuba Chinedu Daniel

Abstract

The agricultural sector in Nigeria today has been characterized by low productivity. Recognizing this, the Nigerian government introduced series of macroeconomic programmes and policy (both monetary and fiscal policies) aimed at improving the sector performance. The study aims at examining the impact of monetary policy on commercial banks’ supply of agriculture credit. The specific objectives are to: investigate to what extent does monetary supply effects commercial banks’ supply of agriculture credits in Nigeria, ascertain to what extent does cash reserve ratio effect commercial banks’ supply of agriculture credits in Nigeria and evaluate to what extent does interest rate effect commercial banks’ supply of agriculture credits in Nigeria. These variables were used in the study: commercial banks’ loan and advances to Agricultural sector (CBLA), Prime lending rate (PLR), Lquidity Ratio (LR), cash reserve ratio (CRR), money supply (M1) for the period of 1985-2017. The autoregressive-distributed lag model was used to estimate the model. The study concluded that monetary policy has significant effect on commercial banks’ supply of agriculture credits in Nigeria. The major findings of the study: (1) monetary supply has positive insignificant effect on commercial banks’ supply of agriculture credits in Nigeria (t – statistics (1.3511) < t0.05 (1.684); (2) cash reserve ratio has positive significant effect on commercial banks’ supply of agriculture credits in Nigeria (t – statistics (3.2824) > t0.05 (1.684); (3) interest rate has no insignificant effect on commercial banks’ supply of agriculture credits in Nigeria (t – statistics (1.2053) < t0.05 (1.684); (4) there is no long run relationship between monetary policy variables and the commercial banks’ supply of agriculture credits in Nigeria and (5) the cash reserve ratio was the monetary policy variable that is more relevant to the commercial banks’ supply of agriculture credits in Nigeria. The following recommendations were made: monetary authority of Nigeria (CBN) should formulate expansionary monetary policies to move away from credit quotas to credit rationing to only farmer who has started agricultural activities to some extent and require agricultural credit to supplement their existing fund. Monetary authority of Nigeria (CBN) should decrease cash reserve ratio by 15 percent as against 22.50 percent to encourage for commercial bank supply of agriculture credit.

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Published

2021-05-04