Impact of Monetary Policy Instrument on Balance of Payment in Nigeria:- Ohia Chinedum

ABSTRACT i The study is anchored on the impact ofmonetary policy on balance ofpayment in Nigeria. The specific objectives ofthe study were to investigate the impact ofmonetary policy on balance of payment in Nigeria and to ascertain the long run relationship between monetary policy and balance ofpayment in Nigeria. The study made use of Ordinary Least Square (OLS), error correction mechanism and cointegration test in arriving at a conclusion. Thus, study reveals that; monetary policy rate and exchange rate have a negative and significant impact on balance of payment in Nigeria; money supply has a positive and significant impact on balance of payment in Nigeria, interest rate has a negative but insignificant impact on balance ofpayment in Nigeria; Lastly, there exists a long run relationship between monetary policy and balance of payment in Nigeria. Based on the findings, the study recommends that: government through the monetary authority should ensure that the domestic money stock is consistent with the macroeconomic objectives ofthe country in order to maintain sustainable BOP position. It is also important that the exchange rate is not overvalued, because this will result in unsustainable Balance ofPayment and escalating external debt stock. In contrast, the exchange rate should find its equilibrium level to make the BOP position viable. The government should encourage export diversification. Non-oil sector exports should be encouraged. This will enhance BOP position in Nigeria. Finally, The Central Bank should make more stringent punishmentfor noncompliance to the monetarypolicies byfinancial institutions mostly especially in the provision of creditfacility since money supply has a significant effect on Nigeria BOPs.