FINANCIAL DEEPENING AND INFLATION IN NIGERIA

Chioma Chidinma George-Anokwuru

Abstract


This study examined the effect of financial deepening on inflation in Nigeria over the period 1981-2023. The researcher gathered data on the inflation rate, private sector credit as a percentage of GDP, broad money supply as a percentage of GDP, exchange rate, and monetary policy rate from reports by Nigeria's central bank. The main method used was the Autoregressive Distributed Lag Bounds testing technique to analyze the data. The results showed there is a long-term link between the variables studied. In the long run, private sector credit as a percentage of GDP and exchange rates had a negative and significant effect on inflation. On the other hand, broad money supply as a percentage of GDP and the monetary policy rate had a positive and significant effect on inflation. In the short run, private sector credit as a percentage of GDP and exchange rate had a positive and significant impact on inflation. However, broad money supply as a percentage of GDP and the monetary policy rate had a negative and significant relationship with inflation during the study period. The study concluded that financial deepening is not always helpful; its effect depends on how well the financial system is structured and how efficient it is. The study stressed the need for a coordinated and comprehensive policy approach to maintain price stability. Keeping prices stable in Nigeria requires not only careful monetary policies but also structural changes that improve credit distribution, boost financial intermediation, and help stabilize the exchange rate. Therefore, financial deepening should focus on efficiency and productivity to support long-term, inflation-free economic growth in Nigeria.

 

JEL: E31, E51, E52, F31, O16


Keywords


financial deepening, private sector credit, inflation, broad money supply, ARDL and Nigeria

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References


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DOI: http://dx.doi.org/10.46827/ejefr.v10i6.2320

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