Analysis of Monetary Policy Effect on Manufacturing Sector Output in Nigeria

This study examined the effect of monetary policy instruments on manufacturing sector output in Nigeria. Monetary policy refers to plans intended to control the amount, cost and value of money in an economy in order to maintain the appropriate level of economic activity. Monetary policies are crucial to the development of Nigeria's economy as they control and stabilize the amount of money in circulation, which encourage investment and ultimately lead to economic growth. It is appalling to note that the manufacturing output seems not enough for local consumption, hence the need to revisit monetary policies that can affect the cost and availability of funds to this sector. The specific objectives were to: evaluate the effect of monetary policy rate; treasury bill rate; cash reserve ratio and money supply on manufacturing sector output in Nigeria. The ex-post facto research design was adopted while the study is anchored on the Irving Fisher’s quantity theory of money. Data were obtained from CBN bulletin and analysed using descriptive statistics and multiple regression. Results showed that: monetary policy rate had a positive and significant effect; treasury bill rate had a positive and significant effect; cash reserve ratio had a negative and non-significant effect while money supply had a positive and significant effect on manufacturing sector output in Nigeria for the period reviewed. It was concluded that monetary policy instruments jointly had significant effect on manufacturing sector output in Nigeria for the period reviewed. The study recommends that: (1) The monetary authorities in Nigeria should reduce monetary policy rate to encourage credit and boost productivity in the manufacturing sector. (2) Banks should negotiate a reduced cash reserve ratio so as to have more funds for lending to the manufacturing sector. (3) The Central Bank of Nigeria should employ an expansionary monetary policy that can increase the money supply to the real sector.