Assessing the Impact of Monetary Policy Rate (MPR) Changes on Bond Prices and Yields in Nigeria

Abstract

Monetary policy remains a cornerstone of macroeconomic management, particularly in emerging economies where interest rate signals play a crucial role in influencing financial market behaviour. This study investigates the impact of Monetary Policy Rate (MPR) changes on bond prices and yields in Nigeria between 2015 and 2024. Anchored in the Expectations Theory of the Term Structure of Interest Rates, the study employs an ex post facto research design and utilizes monthly time series data sourced from the Central Bank of Nigeria (CBN), Debt Management Office (DMO), and other credible institutions. Using Ordinary Least Squares (OLS) regression and Vector Error Correction Modeling (VECM), the study finds a statistically significant positive relationship between MPR and bond yields, and a corresponding negative relationship between MPR and bond prices. The findings also reveal that inflation and exchange rate volatility are important mediators in the transmission of monetary policy to the bond market. While bond yields respond more swiftly to MPR adjustments, bond prices exhibit slower and asymmetric reactions, pointing to inefficiencies in the Nigerian bond market. These results underscore the importance of policy clarity, inflation control, and macroeconomic coordination in strengthening the effectiveness of monetary policy transmission. The study contributes to the empirical literature on monetary policy and provides actionable insights for policymakers, investors, and regulators in Nigeria's financial system.