Real Sector Business Outlook and the Effectiveness of Monetary Policy on the Real Sector in Nigeria

The effectiveness of monetary policy on the real sector has been a major concern of the monetary authority in Nigeria, over a few years ago. This has resulted in series of regulatory actions of the Central Bank of Nigeria (CBN) to ensure more funds/credit are channeled to the sector, in line with the policy objectives of the government to improve the sector. The inability of the real sector investors to meet up with their loan repayment obligations sometimes restricts the flow of this credit from the banking system to the sector, thereby jeopardizing the efforts of the monetary authority. This study, while investigating this concern, observed a similar trend pattern between real sector business outlook and real productive activities; this warranted the inclusion of this variable in the model that was estimated with SVAR. The results revealed a significant estimate of 7.95583; which is a contemporaneous response of credit to real sector to shocks from real sector business outlook. Also, an average of 0.21% variation in real output is explained by structural innovations from real sector business outlook. This means that as business or macroeconomic environment improves, the real investors invest more by accessing credit from the banking system; also, the banks are more confident of loan repayment, as the improved macroeconomic environment is expected to support business growth.