Abstract

This study examined the effect of monetary policy rate on foreign capital inflows in Nigeria over the period 1990–2024. Specifically, the study investigated the effect of monetary policy rate, exchange rate, inflation rate, and money supply on foreign capital inflows in the Nigerian economy. An ex-post facto research design was adopted, while annual time series data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, World Bank Development Indicators (WDI), and National Bureau of Statistics (NBS) publications. Foreign capital inflows served as the dependent variable, whereas monetary policy rate, exchange rate, inflation rate, and money supply were the explanatory variables. Descriptive statistics were employed to examine the characteristics of the data, while the Augmented Dickey-Fuller (ADF) unit root test, Johansen co-integration test, and Error Correction Model (ECM) were used for inferential analysis. The results of the ADF test revealed a mixed order of integration among the variables, while the Johansen co-integration test confirmed the existence of a long-run equilibrium relationship among the variables. The ECM results showed that monetary policy rate exerted a positive and statistically significant effect on foreign capital inflows. Exchange rate exhibited a negative and significant effect, indicating that exchange rate depreciation discourages foreign capital inflows. Inflation rate had a negative but insignificant effect on foreign capital inflows, while money supply showed a positive and significant influence on foreign capital inflows. The error correction term was negative and significant, indicating a strong speed of adjustment toward long-run equilibrium. The study concluded that monetary policy rate and money supply are important determinants of foreign capital inflows in Nigeria, while exchange rate stability remains crucial for attracting foreign investments. The study recommended the maintenance of a competitive monetary policy framework, exchange rate stability, prudent liquidity management, and effective inflation control measures to enhance foreign capital inflows.