INTEREST RATE RESPONSES TO MONETARY POLICY COMMITTEE MEETINGS/COMMUNIQUE IN NIGERIA

Abstract

In recent time the Central Banks cross the globe employ a range of avenues to communicate their monetary policy decisions and explain to financial markets and the general public the reason for their policy actions. This communication, in turn, gives signals to the financial markets regarding the future trajectories of governmental activities. This study therefore investigated the sensitivity of interest rate to MPC communication from 1st January, 2010 to 30th June, 2020 in Nigera. Series of test were carryout and EGARCH was chosen as the appropriate techniques in which dummy variable was used to capture the meeting days in the variance equation. Data of monetary policy were sourced from CBN website. The results of an EGARCH model show that the communications between Central Bank and the money market are considerably informative and therefore assist to reduce market interest rates' volatility. The study has so concluded that the communication from the Central Bank of Nigeria has an impact on the desired direction of interests. One policy implication of this conclusion is that it is clear enough about the desired policy orientation for the future that CBN communique substance of MPC meetings will guide the market in the proper way. This is consistent with the literature that if Central Bank opens the foundations for monetary policy implementation up to the markets, it raises the odds of controlling agents' expectations. Therefore the study recommends that the meeting should be sustained.