Do Nigerian Money Markets React More Strongly to Monetary Tightening than to Easing? Evidence on Asymmetric Interest-Rate Pass-Through, 2006-2026

Abstract: This paper tests whether increases and decreases in Nigeria’s monetary policy rate are transmitted to market interest rates with equal force. Using monthly Central Bank of Nigeria data for March 2006 to March 2026 (241 observations, 29 rate increases and 10 cuts), I estimate change regressions in which positive and negative policy-rate changes enter separately, for four rates: the Treasury bill rate, the interbank call rate, the prime lending rate and the twelve-month deposit rate. Inference uses heteroskedasticity- and autocorrelation-consistent standard errors and Wald tests of equal cumulative responses. Two markets show clear asymmetry. A one-point policy increase raises the Treasury bill rate by 1.73 points in the same month and by 1.98 points over two months, while a one-point cut has no measurable effect (cumulative 0.25, p = 0.680); equality is rejected (p = 0.019). The prime lending rate rises by 0.28 points over two months after a one-point increase but does not fall after a cut (p for equality = 0.042); over three months, however, cuts catch up and the asymmetry disappears, so the rigidity in loan pricing is one of timing rather than magnitude. The bill-rate asymmetry remains large over three months but is no longer statistically significant (p = 0.110). The interbank rate and the deposit rate respond symmetrically. The results hold before 2022 and are sensitive to one data issue: treating the December 2006 switch from the minimum rediscount rate to the monetary policy rate as a 400-basis-point cut distorts the estimated response to easing. Out of sample, allowing for asymmetry does not improve one-month-ahead forecasts of interbank or bill-rate changes.

Keywords: monetary policy; interest-rate pass-through; asymmetry; Treasury bills; lending rates; Nigeria

JEL classification: E43; E52; G12; C22