EFFECTIVENESS OF MONETARY POLICY TOOLS IN CURBING INFLATION IN NIGERIA

The focus of the study was to ascertain the relationship between inflation and monetary policy tools in Nigerian. Considering the behavioral pattern of the variables used for estimation such as monetary policy rate, treasury bill, liquidity ratio, inflation rateand exchange rate, this study adopted Autoregressive Distributed Lagged model (ARDL) model and other econometric techniques such as Augmented Dickey Fuller unit root test, Bound test for cointegration, and other diagnostic tests. The findings of the analysis shows: Inflation exhibits strong persistence, with past values significantly driving current rates, while a corrective mechanism is evident over time, balancing short-term inertia with long-term stabilization. The effects of monetary policy, represented by the monetary policy rate, are mixed and suggest that policy adjustments may initially amplify inflation before achieving stabilization, reflecting the nonlinear and context-dependent nature of monetary interventions. Liquidity ratio plays a significant role in reducing inflation with a delayed impact, emphasizing the importance of managing liquidity effectively, although its influence varies depending on timing and broader conditions. Treasury bills also contribute to moderating inflation, albeit modestly, serving as a complementary rather than a primary tool for inflation control. The exchange rate, however, does not significantly affect inflation in this model, the researcher further suggest among others Policymakers should adopt a more adaptive approach to monetary policy, carefully considering the timing and magnitude of adjustments to the monetary policy rate. This includes accounting for the potential lagged and nonlinear effects to minimize short-term inflationary pressures while maintaining long-term stability.