Monetary Policy Instruments and Performance of Nigeria Capital Market

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue XI, November 2021 | ISSN 2454–6186

Monetary Policy Instruments and Performance of Nigeria Capital Market

Ezu, Gideon Kasie PhD*, Ukoh, Josephine.E, PhD
Department of Banking and Finance, Nnamdi Azikiwe University, Awka, Nigeria
*Correspondence Author

Abstract: Capital Market is the engine of every economy since financial intermediation are carried out through it. The study aims to carefully ascertain the effects of monetary policy rate, liquidity ratio and interest rate on the performance of Nigeria capital market. Secondary data were obtained from CBN statistical bulletin and the NSE Annual reports. The study applied the ordinary least square regression technique with E-view statistical software version 10 in which variations in market capitalization was regressed on monetary policy rate, interest rate and liquidity ratio: The analysis revealed monetary policy rate influences capital market performance significantly and thus, a strong determinant factor. Interest rate and liquidity ratio is not very significant in terms of influence on capital market performance in Nigeria. Based on the findings from this study the CBN should moderate the monetary policy rate by reducing it to single didgit percentage, which will enable customers seek for more loans for investment; government should pursue a lower interest rate regimes as it negatively influenced capital market performance which would encourage investment and boost productivity of capital. The Deposit money banks should maintain an optimal level of liquidity in order to have enough funds that they will extend to the economy for investment in the capital market.

Keywords: interest rate, monetary policy, liquidity.

I. INTRODUCTION

In recent times, monetary policy has acted as a growth catalyst by creating an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive inclusive growth. The primary objective of monetary policy formulation in any economy is to ensure price stability and adequate employment which in turn will create a stable macroeconomic environment for economic growth and development. It is important to engender economic growth. This can only be ascertained if monetary policy is accurately infused into the macroeconomy through the various transmission channels such as the interest rate channel, credit channel, and price level. Investors can only achieve from the returns on investment if the earnings per stock are increasing adequately. Hence the need to know how policy actions affect the financial market, particularly the capital market.
Over the years, measures have been taken to analytically examine the present state of the Nigeria Capital Market and formulate a concise framework geared towards the creation of

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