NGX Group proposes new model to measure monetary

By Chukwuma Umeorah

The Group Managing Director/Chief Executive Officer of Nigerian Exchange Group (NGX), Temi Popoola, has proposed the adoption of a new framework known as the Transmission Conditions Index (TCI) to help Nigerian policymakers measure how effectively monetary policy decisions are transmitted through the country’s financial markets.

He said the framework would provide a market-based diagnostic tool capable of assessing whether policy signals from the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) are reaching businesses, households and investors efficiently through existing financial market structures.

Popoola, who was represented by the Group Chief Strategy Officer of NGX, Jumoke Olaniyan, at the last CBN MPC Workshop said the effectiveness of monetary policy increasingly depends not only on the Monetary Policy Rate (MPR), but also on the strength, liquidity, and coherence of Nigeria’s financial markets.

Delivering a presentation titled, “Structure and Behaviour of Nigeria’s Equity and Government Debt Markets: Implications for Monetary Policy Effectiveness,” Popoola argued that weak market structures could dilute policy transmission regardless of the policy stance adopted by the MPC. “The real question is not only the level of the policy rate, but whether the financial architecture through which it is transmitted is sufficiently deep and liquid,” he stated.

According to him, the proposed TCI framework would leverage real-time market data from NGX and other exchanges to enable policymakers better understand the actual market response to policy decisions. He noted that the growing role of financial market infrastructure means capital market indicators should become more integrated into monetary policy analysis.

Popoola also urged the CBN to treat capital market development as a macroeconomic necessity rather than merely a financial sector objective, arguing that monetary policy decisions travel through market architecture before reaching the wider economy. “Capital market development is not a separate financial-sector ambition. It is increasingly a macroeconomic necessity,” he said.

He further observed that Nigeria’s financial markets are increasingly pricing broader economic reforms, including foreign exchange reforms, fiscal adjustments, and improving investor confidence, rather than responding solely to changes in interest rates. He disclosed that Nigeria’s equity market capitalisation had risen to N159.73 trillion in 2026, while fixed-income market capitalisation stood at N55.82 trillion.

According to him, the NGX All-Share Index recorded a 60.13 per cent year-to-date return, reflecting improving investor confidence despite elevated interest rates.

Popoola further noted that the stock market’s 51.19 per cent return recorded in 2025, despite a high interest rate environment, suggested that investors were increasingly responding to long-term reform credibility rather than short-term monetary tightening.

In the debt market, he pointed to the gap between the current MPR of 26.50 per cent and the 10-year sovereign yield of 14.95 per cent as evidence that markets are pricing future economic expectations differently from prevailing benchmark rates.

However, he warned that activity within Nigeria’s capital market remains concentrated in a limited number of dominant sectors, while retail participation remains relatively weak. He added that low level of retail participation weakens the broader wealth-effect channel through which monetary policy impacts ordinary Nigerians.

Popoola also expressed concern over what he described as competing short-term monetary signals within the financial system noting that the coexistence of Treasury Bills, Open Market Operations (OMO) Bills, and standing facilities creates multiple short-end benchmarks that weaken policy clarity and dilute monetary transmission. “MPR changes are absorbed across multiple instruments rather than transmitted cleanly through a single benchmark,” he stated.

To strengthen monetary policy effectiveness, Popoola advocated the development of cleaner benchmark yield curves, stronger forward guidance, deeper secondary market liquidity, broader retail participation, and increased integration of capital market indicators into MPC decision-making processes.