Nigeria apex bank Central Bank of Nigeria CBN has continued to battle with the job of reviving the ailing economy and putting it on the path of growth. The economy has witnessed unprecedented job loss, rising poverty level, accelerating inflation, sluggish economic growth and disequilibrium in the balance of trade. The study therefore examine the effect of monetary policy on trade balance in Nigeria. Specifically the study ascertained the extent to which inflation, demand deposit, liquidity ratio, exchange rate and interest rate have influenced trade balance in Nigeria using an econometric regression model of the Ordinary Least Square OLS . From the result of the OLS, it is observed that monetary policy rate, demand deposit, liquidity ratio and exchange rate have a significant positive impact on foreign trade in Nigeria. This means that increases in monetary policy rate, demand deposit, liquidity ratio and exchange rate, will lead to increase in foreign trade in Nigeria. On the other, inflation rate and interest rate has a significant negative impact on foreign trade in Nigeria, meaning that as inflation rate and interest rate increases, will be bring about a decline in foreign trade in Nigeria. Based on the findings of this study, the study recommends that the government should employ a contractionary monetary policy to fight inflation by reducing the money supply in the country through decreased bond price. inflation, demand deposit, liquidity ratio, exchange rate and interest rate have influenced trade balance in Nigeria. The government should intervene in the foreign exchange market in order to build reserves for themselves or provide them to the bank to help stabilize the exchange rate. The government should strive to improve trade performance in the short and long run. They should also reduce government spending and tax capital inflow. Edokobi, Tonna David | Okpala, Ngozi Eugenia | Okoye, Nonso John "Monetary Policy and Trade Balance in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd45080.pdf Paper URL: https://www.ijtsrd.com/management/public-sector-management/45080/monetary-policy-and-trade-balance-in-nigeria/edokobi-tonna-david
International Journal of Trend in Scientific Research and Development (IJTSRD)
Volume 5 Issue 5, July-August 2021 Available Online: www.ijtsrd.com e-ISSN: 2456 – 6470
@ IJTSRD | Unique Paper ID – IJTSRD45080 | Volume – 5 | Issue – 5 | Jul-Aug 2021
Page 1299
Monetary Policy and Trade Balance in Nigeria
Edokobi, Tonna David PhD1; Okpala, Ngozi Eugenia2; Okoye, Nonso John3
1Department of Business Administration, Nnamdi Azikiwe University (NAU), Awka, Nigeria
2Department of Accountancy, Nnamdi Azikiwe University (NAU), Awka, Nigeria
3Department of Banking and Finance, Nnamdi Azikiwe University (NAU), Awka, Nigeria
ABSTRACT
Nigeria apex bank - Central Bank of Nigeria (CBN) - has continued
to battle with the job of reviving the ailing economy and putting it on
the path of growth. The economy has witnessed unprecedented job
loss, rising poverty level, accelerating inflation, sluggish economic
growth and disequilibrium in the balance of trade. The study
therefore examine the effect of monetary policy on trade balance in
Nigeria. Specifically the study ascertained the extent to which
inflation, demand deposit, liquidity ratio, exchange rate and interest
rate have influenced trade balance in Nigeria using an econometric
regression model of the Ordinary Least Square (OLS). From the
result of the OLS, it is observed that monetary policy rate, demand
deposit, liquidity ratio and exchange rate have a significant positive
impact on foreign trade in Nigeria. This means that increases in
monetary policy rate, demand deposit, liquidity ratio and exchange
rate, will lead to increase in foreign trade in Nigeria. On the other,
inflation rate and interest rate has a significant negative impact on
foreign trade in Nigeria, meaning that as inflation rate and interest
rate increases, will be bring about a decline in foreign trade in
Nigeria. Based on the findings of this study, the study recommends
that the government should employ a contractionary monetary policy
to fight inflation by reducing t