The Interest Rate and Stock Market Performance in Nigeria (1981- 2024)

The study investigated the interest rate and stock market performance in Nigeria for the Period 1981- 2024. The specific objectives of the study were to analyze the impact of real interest rate on stock market performance in Nigeria, to ascertain the impact of nominal interest rate on stock market performance in Nigeria, and to examine the impact of monetary policy rate on stock market performance in Nigeria. The study adopted ex-post facto design and employed the Auto Regressive Distributed (ARDL) to estimate the model. The major finding of the study Real Interest Rate (RIR) at 5% level of significance has highly negative impact on stock market performance in Nigeria; Nominal Interest Rate (NIR) at 5% level of significance has negative impact on stock market performance in Nigeria; Monetary Policy Rate (MPR) at 5% level of significance has positive impact on stock market performance in Nigeria. While at 70% level of confidence we conclude that the effect is negative and significant. The policy recommendations based on the findings are; where the simple act of raising or lowering the MPR is insufficient; policymakers must manage the expectations and real economic environment that influence the RIR and NIR to ensure capital market stability. Given the substantial negative impact of RIR on SMP, the Central Bank should intensify efforts towards effective inflation targeting and management by controlling inflation and reducing its volatility, the government can stabilize the Real Interest Rate, thereby mitigating the highest source of negative pressure impact of NIR on corporate profitability and stock price, policymakers should introduce measures that promote financial market efficiency to narrow the spread between the MPR and actual lending rates. Recognizing the MPR’s unique positive marginal effect, the Central Bank of Nigeria (CBN) should adopt a strategy of gradual implementation and enhanced transparency in MPR adjustments.