Monetary Policy Dynamics and Stock Market Reactions in Nigeria: An In-Depth Empirical Assessment

This study examines the impact of monetary policy dynamics on stock market reactions in Nigeria over the period 2000 to 2024. Key monetary policy indicators used include the monetary policy rate, money supply, lending rate, and treasury bill rate, while stock market performance is measured by stock market capitalisation. Time series data were obtained from the Central Bank of Nigeria (CBN) statistical bulletin. The analysis employed descriptive statistics, the Augmented Dickey-Fuller (ADF) unit root test, and the Autoregressive Distributed Lag (ARDL) technique to evaluate both short- and long-term relationships among variables. The findings reveal that the monetary policy rate exerts a negative but statistically insignificant effect on stock market capitalisation. Conversely, money supply and treasury bill rate have positive and significant effects, while lending rate shows a negative and statistically significant impact on stock market capitalisation. These results underscore the critical role of monetary policy in influencing stock market performance in Nigeria. The study concludes that monetary policy tools are significant determinants of capital market outcomes. It recommends that the Central Bank of Nigeria should carefully consider prevailing macroeconomic conditions, particularly in adjusting the lending rate, as excessive rates may drive inflationary pressures and hinder stock market growth.