EFFECT OF MONETARY POLICY ON THE SUSTAINABLE DEVELOPMENT OF NIGERIA

Nigeria’s monetary policies are primarily aimed at ensuring price stability and economic growth, yet their effect on sustainable development remains unclear (Basheer et al., 2022). This study, therefore, examined the effect of monetary policy variables—interest rate (IR), total money in circulation (MC), exchange rate (EXR) and sustainable development (SDI) in Nigeria from 1985 to 2024. Data sourced from the World Development Indicators were transformed into logarithmic form and analysed using the Autoregressive Distributed Lag (ARDL) approach. The short-run results revealed that the interest rate significantly reduced SDI at lag two (β = –0.732, p = 0.001) and three (β = –0.184, p = 0.050), while money in circulation showed a negative effect at lag three (β = –0.498, p = 0.009). Exchange rate positively influenced SDI at lag two (β = 0.432, p = 0.003), and the inflation rate exerted a positive effect at lag two (β = 0.123, p = 0.044). The error correction term was negative and significant (β = –0.712, p = 0.000), confirming convergence to long-run equilibrium. In the long run, interest rate (β = 1.746, p = 0.045) and money in circulation (β = 0.813, p = 0.011) significantly enhanced SDI, whereas exchange rate (β = –1.009, p = 0.041) and inflation rate (β = –0.239, p = 0.052) reduced SDI. Trade openness (β = 0.170, p = 0.110) showed no significant effect. The findings conclude that monetary policy exerts both positive and negative (depending on the instrument) effects on SDI in Nigeria. Policymakers are urged to manage properly the currency in circulation, stabilise the exchange rate, and enhance interest rate management to foster sustainable development in Nigeria.