EVALUATION OF MONETARY POLICY IN NIGERIA AND ITS IMPACT ON ECONOMIC GROWTH (1984 – 2015).
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
EVALUATION OF MONETARY POLICY IN NIGERIA AND ITS IMPACT ON ECONOMIC GROWTH (1984 – 2015).
Chapter one
INTRODUCTION
1.0 Background of the Study “Monetary policy is known to be a vital device that a country can set out for the maintenance of domestic price and exchange rate viability, as a critical condition for the achievement of a sustainable economic growth and external viability” (Amasomma, 2011); furthermore,
According to Dwivedi, monetary policy is the deliberate use of monetary instruments (direct and indirect) available to monetary authorities such as central banks to ensure macroeconomic stability.
Monetary policy is fundamentally a tool for carrying out the mission of monetary and price stability. Monetary policy is simply a programme of action implemented by the monetary authorities, typically the central bank, to control and regulate the supply of money to the public and the flow of credit in order to achieve set macroeconomic goals.
Monetary policy is the set of actions aimed to manage the value, supply, and cost of money in an economy in accordance with the level of economic activity. It can also be defined as the art of regulating the direction and movement of monetary and credit facilities in order to maintain stable prices and economic growth (CBN 1992).
Like any other developing country, Nigeria’s government implements three types of public policies to achieve the goal of income distribution and resource allocation. The tools of public policy include monetary policy, fiscal policy, and income policy.
In Nigeria, the government has historically relied on monetary policy to achieve particular economic objectives. These macroeconomic objectives include employment, economic growth and development, balance of payment stability, and a reasonably steady general price level. The reason for selecting monetary policy is that it has significant consequences for both fiscal and income policy initiatives.
Since its inception in 1959, the Central Bank of Nigeria (CBN) has maintained the conventional duty of a central bank, which is to regulate the money supply in order to promote social welfare (Ajayi, 1999).
This position is based on the implementation of monetary policy, which is often aimed at achieving full employment equilibrium, rapid economic growth, price stability, and external balance (Fasanya et al, 2013; Adesoye et al, 2012).
Over time, the two latter aims have frequently served as the primary goals of monetary policy. Thus, inflation targeting and exchange rate management have dominated the CBN’s monetary policy attention, assuming that they are critical tools for attaining macroeconomic stability (Aliyu and Englama, 2009).
A detailed examination of these definitions of monetary policy reveals that monetary policy is essentially about managing the amount of money in the economy to accomplish some mix of inflation and production stabilisation.
Most economists agree that in the long run, output, as measured by GDP, remains constant, hence changes in the money supply only produce price changes.
However, because prices and wages rarely adapt instantaneously, changes in money supply might have an impact on actual production of goods and services (Koshy, 2012).
According to Anyanwu (2003), governments wanting to achieve long-term economic growth following a period of macroeconomic imbalances must first stabilise. In Nigeria, good monetary policy implementation is a critical tool for achieving sustained economic growth.
The major purpose of Nigerian monetary policy has been to maintain domestic price and exchange rate stability, which is vital for achieving long-term economic growth and external sector viability (Sansi, 2002).
Economic growth is crucial in an economy because it lowers poverty and raises the standard of living. Most governments prioritise monetary policy’s effectiveness in affecting economic growth due to its expanding relevance.
Despite economists’ disagreement on how monetary policy works and the magnitude of its impact on the economy, there is surprising agreement that it has some influence (Nkoro, 2005).
Economic growth has long been regarded as an important goal of economic policy, with a significant body of study devoted to explaining how to achieve it (Fadare, 2010).
1.1 Statement of Problem
“Monetary policy is known to be a vital instrument that a country can deploy for the maintenance of domestic price and exchange rate viability, as a critical condition for the achievement of a sustainable economic growth and external viability” (Amasomma et al., 2011);
On a yearly basis, the monetary authority formulates guidelines geared towards the enhancement and development of policy variables designed to ensure optimal performance of the banking industry and ultimately to advise the macroeconomic goals or objectives.
However, in the implementation of such policy variables, certain conflicting issues must be addressed, ranging from the ability to comply with various monetary policy guidelines as well as satisfying depositors and shareholders.
The Central Bank of Nigeria employs a variety of tools to achieve its stated goal, including open market operations (OMO), required reserve ratios (RRR), bank rates, liquidity ratios, selective credit regulation, and moral suasion. In Nigeria, monetary policy has been implemented under numerous regimes.
Monetary policy can be tight or loose at times, with the latter being generally utilised to keep prices stable. The economy has also had periods of increase and decline, although the stated growth has clearly not been sustainable, as evidenced by rising poverty rates among the population.
The debate over whether monetary policy measures have an impact on the Nigerian economy is a subject that this study aims to tackle. Therefore, the main emphasis of this study is to examine the efficiency of the CBN’s monetary policy over time.
This would help analyse the extent to which monetary policies have impacted Nigeria’s growth process by utilising the primary monetary policy objectives as a benchmark.
Need help with a related project topic or New topic? Send Us Your Topic