EFFECT OF INFLATION ON ECONOMIC GROWTH: NIGERIA PERSPECTIVE
Keywords:
Inflation rate volatility, Interest Rate adjustment, Monetary Policy Rate (MPR) and Nigeria’s Gross Domestic Product (GDP).Abstract
This paper examined the effect of inflation and related monetary variables on the economic growth of Nigeria. The method of data collection used in this study were collected through secondary sources, specifically from reputable and authoritative institutions responsible for publishing macroeconomic statistics in Nigeria. The work employed both descriptive and inferential statistical techniques method of data analysis to examine the effect of inflation on Nigerian economic growth from 2000 to 2024. Correlation analysis was employed to assess the strength and direction of the linear relationships between the independent variables then the study made of use the Ordinary Least Squares (OLS) regression technique to determine the individual and combined effects of the independent variables on economic growth while the overall goodness-of-fit was evaluated using R-squared and F-statistics. The entire analysis was carried out using econometric software-EViews 12. In conclusion the study found that inflation has a negative and statistically significant effect on Nigeria’s GDP, with a coefficient of -2.734 and a p-value of 0.0055. Interest rate adjustments were found to have a negative and significant effect on GDP, with a coefficient of -2.889 and a p-value of 0.0145. The monetary policy rate (MPR) also demonstrated a negative and statistically significant impact on GDP, with a coefficient of -0.089 and a p-value of 0.0060. The paper recommends that higher interest rates increase the cost of borrowing, discouraging investment and consumption, thereby slowing down economic growth. The Central Bank of Nigeria and relevant policymakers should implement effective measures to control inflation, such as stabilizing prices of essential goods and services and monitoring money supply and should carefully calibrate the MPR to maintain liquidity in the economy while controlling inflation. Policymakers should adopt a balanced approach to interest rate adjustments, ensuring that rates are not excessively high to avoid discouraging investment and consumption, which are critical for sustaining economic growth.References
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