This research work is an attempt to
examine the effect of Central of Bank of Nigeria in performance monetary policy
of bank. The essay work provides a background to the origin and development of
monetary policy in fighting inflation and highlighted the major functions and
activities performed by the Central Bank of Nigeria in order to achieve their
main objectives. It also discusses the objectives, instrument and problems of
TABLE OF CONTENT
Title page - - - - - - - - - - i
- - - - - - - - - - ii
page - - - - - - - - - iii
Dedication - - - - - - - - - - iv
- - - - - - - - - v
Abstract - - - - - - - - - - vii
contents - - - - - - - - - viii
1.1 Background of the study - - - - - - - 1
1.2 Statement of Problems - - - - - - - 3
1.3 Objectives of the study - - - - - - - 4
1.4 Research Question- - - - - - - - 4
1.5 Significance of the study - - - - - - - 5
1.6 Scope and limitation of the study - - - - - 6
1.7 Definition of terms - - - - - - - - 6
2.0 Literature Review - - - - - - - - 9
2.1 Introduction - - - - - - - - 9
2.2 Definition of Concepts - - - - - - - 10
2.3 Definition of Monetary Policy - - - - - 13
2.4 Instruments of Monetary Policy - - - - - - 15
2.5 Types of Monetary Policy - - - - - - 19
2.6 Objectives of Monetary Policy - - - - - - 22
2.7 Monetary Functions of the Central Bank of
Nigeria - - 23
2.8 Weakness of Monetary Policy in Combating
Inflation - - 26
3.0 Introduction - - - - - - - - 29
3.1 Area of Study - - - - - - - - 29
3.2 Research Design - - - - - - - - 29
3.3 Population of Study - - - - - - - 30
3.4 Sampling Technique - - - - - - - 30
3.5 Data Collection and Instrument - - - - - - 30
3.6 Administration of the Instrument - - - - - 31
3.7 Method of Data Analysis - - - - - - - 31
4.0 Data Presentation, Analysis and
Interpretation - - - 32
4.1 Introduction - - - - - - - - - 32
4.2 Data Presentation - - - - - - - - 32
4.3 Summary of Findings - - - - - - - 36
5.0 Introduction - - - - - - - - - 38
5.1 Summary of the study - - - - - - - 38
5.2 Conclusion - - - - - - - - - 39
5.3 Recommendation - - - - - - - - 39
Bibliography - - - - - - - - 41
1.1 BACKGROUND OF THE STUDY
Monetary policy entails
the government policies aimed at changing the quantity of money or credit
condition. In every economy, after fiscal policy, the next most powerful
macro-economic stabilization is monetary policy.
In fact Monetary and
fiscal policies are expected to work together as complements to achieve one
goals of a sound macro economic management that include amongst other domestic
price stability external sector viability as well as enhance efficiency in
resource allocation, distribution and utilization.
Monetary policy is
therefore measure designed to regulate and control the volume, cost,
availability and direction of money and
credit in an economy to achieve some specifically micro-economic objectives. It
is one policy that seeks to influence economic activities using the tools
available to the central bank i.e. money supply (MS) interest rates and
exchange rates. It can also mean the deliberate attempt by the authorities to
either control the supply of money or to control interest rates or to ration the
amount of credit granted by banks.
The history of economic
growth shows that, economic transformation started in England in the Late
eighteen century and gradually spread to other parts of Europe and North
America. Economic transformations did not get to other parts of thee world
until in the 1950s when Japan transformed to become one of world’s major
industrial giants. This economic transformation has spread far and wide in the
recent times but its spread is highly limited in Africa. It is only South Africa
that has experienced it so far. This is clearly demonstrated by the World Bank
report of (2001) which states that out of the 46 poorest countries in the
World, 35 of them are in Africa.
Nigeria with it’s vast
resources of both human and material nature is not left out of the club of
poverty stricken countries. This poverty is illustrated by the recent World
bank report (2005), which says that more than 70% of Nigerians are living below
It is against this
background that this study is being undertaken. This poverty can be tackled
using both fiscal and monetary policies to help solve this problem and growing
poverty. So far, removing the country from poverty trap that seems almost
impossible to be solved using variety of macro-economic policy measures.
STATEMENT OF THE PROBLEM
The problem of inflation
in Nigeria has been confronted in variety of ways by the government of the
country using different macro-economic policies. The government introduced
several measures e.g. National Development Structural adjustment Programmes
(SAPs). Guided Deregulation etc. to combat this problem. Despite all these
measures, we still experience inflation in the country.
The question now is, why
we still experience inflationary conditions after all these variety of measures
adopted by the government to control it or reduce it intensity?
Moreover, the issue of
monetary policy has its objectives one of which is tackling the problem of
inflation. The Central Bank applied all
measures to control it still every effort seem to be fruitless.
The nest question is why
have all these measures failed in combating the problem of inflation?
To highlight the
relevance of monetary policy in combating inflation.
Try to explain the
various types of monetary policy that can be used to combat inflation and other
Identify and discuss the
monetary policy problems with particular reference to Nigeria.
To explain the various
instruments of monetary policy that can be used to combat inflation especially
in less developed Countries (LDCS) such as Nigeria.
The following hypothesis
have been put forward to guide research work
1. Monetary Policy is not an effective
tool of macro-economic stabilization of an economy.
2. Money supply has no impact on the
Level of economic activities and growth.
3. Central Bank of Nigeria’s monetary
and credit Policy guidelines and money supply do not have impact on the level
SIGNIFICANCE OF THE STUDY
However, this research
work will assist the economy to derive possible solution to the research
problem e.g. control of inflation using monetary policy measures as adopted by
the monetary authorities of the Central Bank.
Furthermore, the research
ex-rays the various types of monetary policy measures, which can be used to
combat the problem of unstable economy and prices, and as a result will be a
kind of research materials to those in various fields may be of immense use of
Government will benefit
immensely from this research works as the topic is very relevant in the field
of macro-economic policy formulation.
SCOPE OF THE STUDY
This project covers the
role of monetary policy and it’s controlling inflation in the Nigeria economy.
A general overview of monetary policy and inflation in the Nigerian economy is
the foundation upon which the project is developed.
1.7 LIMITATIONS OF THE STUDY
However, study of this
nature is known to be subject to a number of problems or constrains, which are
peculiar to the Nigerian society such as financial constraints. This research
work was not an exception the problem of visiting the Central Bank of Nigerian
and some other places for data collection involved spending a lot of money or
Hence, the predicament of
the overage students can therefore be imagined.
Furthermore, the issue of
office protocols time limit, secrecy inadequate research materials also were
some setbacks to the researchers in carrying out this research.
1.8 DEFINITION OF TERMS
Expansionary Monetary Policy: Is a monetary policy that seeks to
increase the size and volume of money supply, it can be increase by buy bonds
in exchange for hard currency payment to adds that amount of currency to the
Contractionary Monetary Policy: This is the policy that can be
implemented by reducing the size and volume of monetary base by the way of sell
bonds in exchange for hard currency, by so doing it removes that amount of
currency from the economy.
Reserve Requirement: Commercial banks are required to
maintain certain reserve requirement in order to control their liquidity and
influence their credit operations, these are usually expressed as a percentage
of customers deposits.
Discount Rate: The discount rate is the rate of
interest the monetary authorities charge the commercial banks on loans extended
to them. If the Central Bank wishes to increased liquidity and investment, it
reduces the discount rate, and on the other hand if the Central Bank wishes to
reduce liquidity in economy, it raises the discount rate.
Liquidity Ration: The Central Bank imposes upon the
bank a minimum liquidity ratio, being vary to the needs of the situation. It is
designed to enhance the ability of bank to meet cash withdrawals in them by
their customers. Such liquidity ratio stands for the proportion of specified
Open Market Operation (OMO): This involves the Central Bank
Discretionary power to sell or purchase securities in the financial market in
order to influence the volume of credit and interest rate which consequently affect
money supply. The securities include treasury certificates, treasury bill and
Moral Suasion: Is the act of public pronouncements
or outright appeal on the apart of monetary authorities to the banks requesting
them to operate in a particular direction for the realization of specified
Economic Growth: This is a process whereby the real
per-capital income of a country increases over a long period of time. Economic
growth is measured by the increase in the amount of goods services produced
deposits are savings and currents account of deposits in a commercial bank.
Money Supply: Is a currency with the public and
demand deposits with commercial banks. Demand deposits are savings and current
account of depositors in a commercial bank.
Economic Life Cycle: This refers to a view of product
design, each stages of the product’s life is assessed in terms of cost, at each
stage of this life cycle choice have to be made.