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The Relationship Between Monetary Policy Rate (MPR) and Bond Prices and Yields in Nigeria

Mr. Uzoechi Chibueze John

Abstract

Monetary policy remains a cornerstone of macroeconomic stability in emerging economies, yet its transmission to bond markets is often hindered by structural inefficiencies. This study investigates the impact of Nigeria’s Monetary Policy Rate on bond yields and prices from 2015 to 2024, integrating the Expectations Theory of the Term Structure of Interest Rates with empirical analysis. Using monthly data and robust econometric techniques (OLS and VECM), the results confirm a statistically significant positive relationship between MPR and bond yields and an inverse relationship with bond prices. Critically, inflation and exchange rate volatility emerge as potent mediators, amplifying MPR’s effects while exposing market asymmetries yields adjust 40% faster than prices to policy shocks. The findings reveal persistent frictions in Nigeria’s bond market, where fiscal dominance, currency instability, and shallow liquidity dilute monetary signals. These insights underscore the imperative for credible policy frameworks, macroeconomic stabilization, and institutional reforms to strengthen monetary transmission.

Keywords

Monetary Policy RateBond YieldsBond PricesInflationExchange Rate

References

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