EFFECT OF MONETARY POLICIES OF THE CENTRAL BANK OF NIGERIA
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EFFECT OF MONETARY POLICIES OF THE CENTRAL BANK OF NIGERIA
It is impossible to overstate the importance of the Central Bank of Nigeria’s position as the primary financial system supervisor, particularly in light of the institution’s use of monetary policy to control the availability of funds for banking activities.
The goal of this study is to determine how the monetary policy affects banking activities in order to control the amount of money available to the Nigerian economy, particularly with regard to deposit generation and credit distribution.
Three case studies—First Bank of Nigeria plc, Ecobank (Nigeria) Bank, and Union Bank of Nigeria—were used in this research. With a sample size of forty-five (45), secondary data were gathered for the literature review from journals, magazines, the internet, and textbooks.
Primary data were also collected using questionnaires and personal interviews, and responses were analysed using the chi-square method of analysis from which conclusions were drawn.
It was found that the monetary policy has a significant impact on banking operations; as a result, some helpful suggestions and submissions were made for their management and expansion.
INTRODUCTION
Measures or contributions to measures created by the monetary authorities to control or influence the amount and flow of money and credit are referred to as monetary policies.
Hyman, (1989). In order to reach goals that are rationally prescribed but otherwise hard to achieve in terms of volume, velocity, and direction, monetary policy affects the volume and direction of purchasing power in the economy. In 1991, Oyindo.
Over the years, there has been much debate on how much money and monetary policy affect financial and economic activities. Although it is generally acknowledged that monetary development has an impact on economic and financial performance, there are divergent opinions regarding the magnitude of this impact and the routes by which it manifests itself.
As a result, the effects are both direct and indirect thanks to the economy’s feedback. Therefore, monetary management relies on two b; ad kinds of tools or instruments.
Typically, changes in relative price and wealth occur when the quality of the money supply varies in relation to the money demand as a result of policy measures Onyindo from 1991.
The Central Bank of Nigeria and the Central Government are typically in charge of monetary and banking policies. According to Odozi (1995), the Central Bank of Nigeria is primarily responsible for formulating, executing, and evaluating such policies with the permission of the federal government.
To some extent, the monetary authorities were unable to prevent growth in credit and money stock, which was primarily caused by unwarranted fiscal expansion, which will likely present greater challenges in the future.
However, the package of measures for monetary and banking management has so far had desirable effects, such as preventing the liquidity in the banking system from exploding further.
1.2 BACKGROUND OF THE STUDY
An economy cannot function without the use of monetary policy, and the Central Bank of Nigeria seeks to implement it in a number of ways, including through commercial banks’ banking activities.
In order to promote economic growth, employment, and stability, an economy must be managed by clearly identifying remaining strategies and developing various policies and procedures that will ensure efficient utilisation of the nation’s resources. In 1991, Onyiclo. The Central Bank of Nigeria is therefore always important to maintain efficiency.
Because there were few banks at the time, there was little to no rivalry in the banking sector, which forced clients to open accounts of their own free choice. In the past, banks operated arm chair banking, which they did before the banking industry existed.
The establishment of a light monetary policy and the liberalisation of banking licence requirements were two changes that occurred, and they required strong marketing of bank services.
Banks began releasing new operating models and financial products at this time in an effort to draw clients, which sparked competition in the banking sector.
According to Onyido (1993), banking operations are very important because they play a significant role in the national payment system and saving investment processes by mobilising deposits and making them available to investors.
By doing this, they assist in the development of the economy by promoting the flow of goods and services, employment, income, and consumption. Every economy benefits from having a functioning banking sector because it helps to foster economic growth by providing funds to various economic entities,
which in turn encourages investment and facilitates payments and international trade. This justifies why every economy is interested in developing and supporting its banking sector.
The Central Bank of Nigeria acts as an accelerator of economic development since the application of monetary policy on the banking sector depends on the regulation of the money stock to impact financial and economic activities.
Additionally, it serves as an institutional catalyst, driving the economy in the direction of the nation’s desired economic goals through ongoing, active monetary policy management of the currency and credit system.
Additionally,
because the banking sector holds a unique position in all economies as the primary creator of money, manager of credit, and manager of the nation’s payment system, monetary policy is a tool that is used to achieve meaningful dialogue and understanding between financial institutions and monetary authorities.
For these reasons, the federal government believes it is necessary to develop policy to direct the banking sector. These policies, to varied degrees, are aimed at accomplishing macroeconomic goals like economic growth, price stability, employment, and a strong external position.
Similar to this, the price strategies also accomplish the microeconomic goals of financial system soundness, efficiency, and stability. The regulation of the banking sector generally has an impact on these policies, making banks conduits for the monetary policy to flow through in order to promote economic growth.
STATEMENT OF THE PROBLEM
Excess liquidity is a concern in the Nigerian economy, especially outside the banking sector. This has been a source of worry for everyone, especially the monetary authorities, so if it gets out of hand, the economy will experience excessive inflation. This is an unhealthy condition for any country because too much money is chasing too few commodities.
The main issues were how the monetary policy would affect banking operations in an effort to control the issue of regulating money supply in the economy and how far the monetary authorities should go in controlling excess liquidity in the Nigerian economy without distorting the sector.
1.4 OBJECTIVES OF THE STUDY
The study is being conducted to determine: 1. How many policies have an impact on banking operations in an effort to control the amount of money in the economy, with a focus on deposit and credit creation.
2. The extent to which the Central Bank of Nigeria has succeeded in controlling the money supply.
3. Whether the industry as a whole has benefited from the monetary policies.
4. The significance of financial instruments in obtaining the required control through bank activities.
5. Both positive and negative effects of monetary policy on banking operations.
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