Understanding Nigeria’s Monetary Stance: Insights from Monetary Conditions Index (MCI)

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Published: Dec 17, 2023
DOI: https://doi.org/10.53790/ajmss.v4i1.87
Keywords:
Credit, Interest rates, monetary condition index (MCI), output and monetary policy, real exchange rate, Nigeria

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Olukayode S. Odeniran
Central Bank of Nigeria, Abuja
Linda K. Shekarri
Central Bank of Nigeria, Abuja
Oyebanji. J. Olaoye
Central Bank of Nigeria, Abuja
Oluwafemi I. Ajayi
Central Bank of Nigeria, Abuja
Auwal Isah
a:1:{s:5:"en_US";s:30:"Central Bank of Nigeria, Abuja";}
Richard O. Umeokwobi
Central Bank of Nigeria, Abuja

Abstract

The study provides insights and revisits the construction of the Monetary Condition Index (MCI) for Nigeria to aid in evaluating the stance of monetary policy over time. The study covers periods from 2000Q2 to 2022Q4, coinciding with key reforms in the money and foreign exchange markets, the adoption of the I&E window as the official exchange rate of the CBN, and the adoption of a new monetary policy framework in 2006. The result of the long-run coefficients was applied as a weight to the deviations of the MCI components to derive the monetary conditions indices. The result of the deviation suggests that the Narrow MCI was more stable than the Broad MCI, and both have mimicked the actual policy stance of the CBN to a large extent. Also, the study found some level of convergence between the MCIs and the monetary policy stance, suggesting that monetary conditions are in line with the Bank’s signalling instrument. In conclusion, the forecast of the MCIs suggests a tightening policy stance in the short to medium term. The study, thus, recommends that the CBN continue tightening its monetary policy rate for the next 12 quarters.

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How to Cite
Odeniran, O. S., Shekarri, L. K., Olaoye, O. J., Ajayi, O. I., Isah, A., & Umeokwobi, R. O. (2023). Understanding Nigeria’s Monetary Stance: Insights from Monetary Conditions Index (MCI). Applied Journal of Economics, Management and Social Sciences, 4(1), 33–46. https://doi.org/10.53790/ajmss.v4i1.87
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Vol. 4 No. 1 (2023): vol
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