This study examines the effect of the monetary policy rate on Nigeria’s financial market, incorporating the moderating role of institutional quality using monthly data from 2010M01 to 2024M12. The Autoregressive Distributed Lag (ARDL) bounds testing approach and Error Correction Model (ECM) are employed to capture both the short-run and long-run dynamics. The results show that the monetary policy rate has a positive and significant impact on financial market performance in both periods, indicating the dominance of the signalling channel over the cost-of-capital channel. Institutional quality exhibits a positive but insignificant moderating effect in both the short and long run, although it is highly significant in the short run, reflecting its role in creating market frictions and instability. The negative lagged interaction term suggests that institutional rigidities delay policy transmission. The study concludes that strengthening institutional frameworks and implementing structural reforms are critical to enhancing monetary policy effectiveness in Nigeria.

Keywords: monetary policy rate, financial markets, institutional quality, ARDL-ECM technique, Nigeria.

JEL Classification: E52, E44, C32, O43