The Impact of Monetary Policy on Interbank Market Rate: Evidence from the Nigerian Banking Industry
DOI:
https://doi.org/10.54741/ssjar.2.4.5Keywords:
banking industry, monetary policy, interbank, afemAbstract
Inter-bank markets are among the most important in the financial system. They are the focus of central banks’ implementation of monetary policy and have a significant effect on the whole economy. Transactions in the inter-bank funds market provides signal of what obtains in the open credit market. However, apart from the rate of interest (cost of transaction) in the market that influences the tempo of activities, other determining factors are liquidity position of the banks, and change in the demand for foreign exchange which determines the frequency with which banks access the market for funds to cover their bids at the Autonomous Foreign Exchange Market (AFEM) or Wholesale Dutch Auction System (WDAS). The market rate on the other hand is influenced by a number of factors including monetary policy instruments such as: open market operations, reserve requirements, monetary policy rate and central banks standing facilities. The market rate is believed to determine the market liquidity and affects directly the amount of resources that commercial banks have at their disposal and which they are consequently willing to lend in the interbank market. It is therefore necessary to understand the factors behind the dynamics of the market rate. Consequently, this paper examines the impact of monetary policy on interbank market rate with evidence from the Nigerian banking industry.
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