Monetary policy and the manufacturing sector in Nigeria

Abstract

Purpose: This study investigates how Nigeria’s manufacturing sector responds to key monetary policy measures. Specifically, it examines the extent to which the treasury bill rate (TBR), prime lending rate (PLR), inflation rate (INF), and exchange rate (EXR) influence manufacturing sector output (MFO).

Methodology: The study employed time series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin covering 2010–2023. Preliminary econometric procedures, including unit root tests and the Johansen cointegration technique, were used to determine the stationarity status and long-run relationships among the variables. Based on these outcomes, an error-correction framework was estimated to capture short- and long-run dynamics between monetary policy indicators and manufacturing sector output.

Results and conclusion: The findings reveal that monetary policy variables, specifically the exchange rate, treasury bill rate, inflation rate, and prime lending rate, do not exert a significant influence on Nigeria’s manufacturing output in either the medium or long run. The study concludes that the weak transmission of monetary policy to the real sector may stem from structural bottlenecks, policy inconsistencies, and an unfavourable operating environment that limit the responsiveness of manufacturers to monetary adjustments.

Implication of findings: The study suggests the need for the government to strengthen the regulatory framework by streamlining procedures, reducing bureaucratic delays, and lowering compliance costs. Enhancing transparency and ensuring stable, predictable policy implementation will improve the operating climate for manufacturers and support better monetary policy transmission to the sector.