SENSITIVITY OF EXCHANGE RATE TO CBN MONETARY POLICY COMMUNICATIONS 2010-2020

Abstract

Over the last decade, central bank communication has become an increasingly essential policy instrument for monetary authorities. This is due to the significant impact that central bank communication has on economic agents' expectations and, as a result, their economic decision-making. This study therefore investigated the sensitivity of Exchange rate to MPC communication from 1st January, 2010 to 30th June, 2020 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 ‘Exchange rates' volatility. The study has so concluded that the Communication from the Central Bank in Nigeria has an impact on the desired direction of Exchange. 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 recognized literature, that if a central bank opens the foundations for monetary policy implementation up to the markets, it raises the odds of controlling agents' expectations. Therefor the study recommends that the meeting should be sustained.