Non- Linear Autoregressive Approach to Monetary Policy Rate and Nigerian Capital Market Development

Abstract

Capital market is crucial for economic growth by facilitating the flow of funds between those who need capital and those who have it. This paper examined the impact of monetary policy rate on the Nigerian capital market development from 1990 to 2024, using the non-linear autoregressive distributed lag (NARDL) model approach. The specific objective of this paper is to determine the impact of monetary policy rate on the All-Share Index and the included variables are monetary policy rate, broad money supply, inflation rate, nominal exchange rate and 91Treasury bill as the explanatory variables and the All-Share index as the dependent variable. The data were sourced from Central Bank of Nigeria Statistical Bulletin and National Bureau of Statistics. From the result, it was shown that an increase in the monetary policy rate resulted to 18 percent increase in capital market indicator, All Share index. Furthermore, a decrease in the monetary policy rate resulted to a 4 percent decrease in the All-Share index while a percentage increase in Treasury bill resulted to 9 percent increase in All-Share. This paper concluded that the monetary policy rate has a significant impact on the Nigerian capital market development and recommended among others as follows: The Central Bank of Nigeria (CBN) should implement monetary policy rate adjustment that is economy sensitive, so at to maintain a balance between curbing inflation and encouraging investment in equities for economic growth.