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EFFECTS OF MONETARY POLICY ON NIGERIAN CAPITAL MARKET

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ABSTRACT

This research work examined the effect of monetary policy on the Nigerian stock market by specifically examining the impact of monetary policy on money supply, treasury bill rate, exchange rate,interest rate and inflation rate on all share index.  To achieve these objectives, the study employed the Ordinary Least Square (OLS) econometric technique in which time series data was collected for the period 1985-2014.Using Secondary data collected from Central Bank of Nigeria and Nigerian Stock Exchange. This period was considered due to the liberalization of the financial sector. Following the outcome of this study, the results, revealed that Broad Money Supply(M2) and, Exchange rate(EXR) are positively related to the All Share Price Index at 5% level of significance of 53.86% and 66.81% changes in the all share index respectively, Interest rate (INT)as a monetary policy tool at 5% level of significance has a negative influence on all share index of 1.5% variation in the market indexandTreasury bill rate (TBR), negatively related to the All Share price index. The dominanceof insignificant negative relationship between monetary variables and stock market indicates that there is a disconnection between monetary policy and stock market. Hence we recommend that, monetary authorizes should formulate policies that will stabilize significant macroeconomic indicators in order to promote the capital market.


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