Does Open Market Operations as a Monetary Policy tool have Impact on Price Stability in Nigeria?

Abstract

Open market operation was introduced as a monetary policy tool in Nigeria in 1993. Since then, it has been extensively used in conjunction with other tools such as reserve requirement, discount window operation, and moral suasion as an instrument of price stability; however, inflation in Nigeria has not reduced to the desired single digit level on a consistent basis. It is against this background that, our paper investigated the impact of OMO as a tool for monetary policy on price stability in Nigeria from 1993-2007. Using OLS regression model, our result reveals that open market operation has positive non-significant impact on consumer price stability as proxied by inflation rate in Nigeria. Our result also reveals that there was a positive correlation between open market operation and consumer price stability of the Central Bank of Nigeria for the period, therefore remains a useful tool, hence our recommendation is that it should be used in conjunction with other relevant ones in the maintenance of price stability in Nigeria.

Keywords: Open Market Operation, Price Stability, Nigeria