The Monetary Policy Rate of the Central Bank of Nigeria (CBN) and the Nigerian Stock Market: A Structural Var Analysis

摘要

This study examines the dynamic relationship between stock marketperformance and the CBN monetary policy rate between the period of 1973-2012.We utilized the “all share price index” in the Nigerian stock exchange as ameasure of stock market performance and the official rate of interest at whichthe CBN lends money to money deposit banks in the country as a measure of themonetary policy rate. The author estimated the SVAR model. The major finding inthe study is that stock market performance is negatively associated with theCBN monetary policy rate in Nigeria. In effect, if the CBN monetary policy ratewas high, investors would move from high risk stock market to invest in lowrisk bank deposits while, if the CBN policy rate is low, investors may preferto invest in the stock exchange market. Given the peculiarities of Nigerianeconomy, hikes in the short term CBN monetary policy rate might becounter-productive. The soaring rate of the CBN is amplifying fears in somequarters of the country that the reform measures currently being implemented bythe CBN may soon run into a hold-up since bank loans are gradually being pricedout of the reach of most economic operators in the economy. Therefore,additional practical measures to enhance the performance of the Nigerian StockExchange should be implemented.