Assessment of Relationship between Market Dynamics, Bank Credit and Inflation Rate: Experience from Nigeria

The study examined the relationship between the capital market and the inflation rate in Nigeria. Secondary data was employed and sourced from the publications of the Security and Exchange Commission and Central Bank of Nigeria. The variables for which the data was sourced include: market capitalisation, all-share index, market volume and market turnover, inflation rate, and gross domestic product for the period 1988 to 2019. The data was analyzed using multiple regression analysis and other econometric tests such as the unit root test, co-integration test, and vector error correction mechanism (VECM).Market capitalization had a negative effect on inflation both in the short and long run (b =.1864346, t = 4.99, P > t| =0.000).A granger causality relationship existed between capital market dynamics, banking credit, and inflation. It is concluded that the capital market is embedded with an effective instrument to curb inflation in the country. In view of the above findings, it is recommended that the capital market regulatory bodies should introduce and implement policies that will increase the level and size of market capitalization in the Nigerian capital market as an increase in market capitalization will surely increase fund availability for desired investment, which will trigger an increase in the productivity of the nation and curb inflation in the country.