EFFECTIVENESS OF MONETARY POLICY ON PROFITABILITY OF COMMERCIAL BANKS IN SIERRA LEONE FOR THE PERIOD OF 2012-2018

ABSTRACT This study seeks to assess the effectiveness of monetary policy on the profitability of commercial banks in Sierra Leone for the period of 7 years starting from 2012 to 2018. The profitability of the commercial banks was proxied by Return on Assets and represents the dependent variable, whereas monetary policy rate, Cash reserves ratio, Exchange rate, Inflation rate and Treasury bill rates were used as the independent variables. The secondary data collected were analyzed using Descriptive statistics, Correlation analysis and the multiple linear regressions to test the hypothesis of the study. The study discovered that monetary policy rate, exchange rate and inflation are all having a positive and significant effect on the profitability of commercial banks, while cash reserve ratio and Treasury bill rate are negatively related on the profitability of commercial banks in Sierra Leone. Since the profitability of the commercial banks anchor on the monetary policies set by the authority, the study therefore recommends that the relevant authority should be extremely cautious when setting monetary policies to achieve macroeconomic objectives