Central Bank Independence and Inflation Performance in Nigeria

The study examined the effect of Central Bank Independence (CBI) on inflation performance in Nigeria over the period of 1975 to 2023. Motivated by Nigeria’s persistently high inflation, which averaged 20.46% between 1980 and 2012 and reached 28.92% in December 2023, alongside a CBI index averaging only 0.48 on a scale of zero to one during the same period, the study investigates whether statutory independence translates into effective operational autonomy capable of delivering sustained price stability. The study employed an ex post facto research design. Central bank independence was sourced from the Cukierman and Garriga index database. Inflation rate, money supply, and monetary policy rate were sourced from the World Development Indicators database. The variables were subjected to unit root tests using the Augmented Dickey-Fuller and Phillips-Perron tests, and the results indicated mixed orders of integration. The Autoregressive Distributed Lag (ARDL) model was employed for the analysis, and inferences were made at 5% significant level. The result indicated that central bank independence had a positive and insignificant effect on the inflation rate in both the short and long run, while the monetary policy rate had a negative and significant effect on the inflation rate in the short and long run. The study, therefore, concludes that central bank independence is not a significant driver of the inflation rate in Nigeria but rather the monetary policy rate. The study therefore recommends that the CBN should continue using MPR as the primary instrument for controlling inflation, and that institutional reforms that strengthen the autonomy of the central bank should be reinforced.