ABSTRACT
Results of monetary policy outcomes suggest that Nigeria does not enjoy ideal conditions for adopting
a monetary policy regime aimed primarily at stabilizing prices under a freely floating exchange rate.
The reasons often advocated is that Nigeria faces a very volatile macroeconomic environment and a
more acute inflation-output trade-off than other emerging market economies which have embraced
price stabilization programs and thereby abandoning their exchange rate anchors. Moreover, Nigeria
has an intense exchange of goods and services with the rest of the world which is stronger than other
emerging market economies, thanks to its mainly oil-exporting-oriented economy. This can make
Nigeria particularly exposed to price and quantity-type external shocks, which renders price
stabilization all the more complicated. Open Market Operation is one of the monetary policy tools of
the Central Bank of Nigeria which entails the sale or purchase of eligible bills or securities in the open
market by the Central Bank of Nigeria for the purpose of influencing deposit money, banks’ reserve
balances, and the level of base money which is effectively aimed at achieving the price objectives of
the Central Bank of Nigeria. Thus, this study sought to: examine the impact of Open market
operation on the maintenance of Exchange rate price stability in Nigeria and determine the
impact of Open market operation on the maintenance of consumer price stability in Nigeria.
The research design adopted for this study is the ex post facto research design. This enabled the
researcher make use of secondary data.
Annualized data from 1993 to 2007 of proxies from the
Central Bank of Nigeria statistical bulletin were used. The Linear Regression Model (LRM)
estimation technique using SPSS statistical software was used to evaluate the stated objectives where
rate values of Open Market Operation Rate (OMOR) as proxy for Open Market Operation (OMO)
which is the independent variable while Nominal Effective Naira Exchange Rate Indices (EXR),
Inflation Rate (INFR) and Gross Domestic Product Growth Rate (GDPGR) as a control variables. The
result revealed that open market operation has a negative non-significant impact on exchange
rate in Nigeria (t = -0.025, coefficient of OMOR = -0.003) and open market operation has
positive non-significant impact on inflation rate in Nigeria (t = 1.604, coefficient of OMOR =
0.047). As revealed from the findings in this research the use of open market operation as a
monetary policy tool have actually influence consumer price stability in Nigeria hence the
study recommends among others that an increased use of open market operations as a tool for
achieving price stability in Nigeria and a conscious effort monetary authorities in bring the
informal sector into the main stream of the Nigeria economy. This will help to expand as well
as capture the huge funds in the informal sector which is presently not captured.
