ROLE OF MONETARY POLICY IN THE CONTROL OF INFLATION IN NIGERIA
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ROLE OF MONETARY POLICY IN THE CONTROL OF INFLATION IN NIGERIA
Chapter one
1.1 Background of the Study
Monetary policy is one of the most essential components of macroeconomics, as it is utilised to determine aggregate and average figures for the economy.
This takes into account the factors that influence total employment and output consumption, investment in increasing productive capacity, and how much a country buys and exports.
It also asks what causes short-run booms and slumps, as well as what determines the long-term growth rate of the economy in the general level of prices and the rate of inflation (Nwachukwu 1998; 12). Macroeconomics considers how the government can and should influence these matters through monetary and fiscal policies.
The overall behaviour of the economy is investigated. Furthermore, macroeconomics attempt to address supply concerns that arise as a result of excessive consumer demand for products.
However, monetary policy is directly concerned with controlling the economy’s surplus money supply.
To put it another way, monetary policy is a set of actions meant to keep the value, supply, and cost of money in an economy in line with the expected level of activity.
Monetary policy objectives in most economies, including Nigeria, include price stability, balance of payment maintenance, equilibrium, employment and output growth enhancement, and long-term development.
These goals are crucial for achieving internal and external balance and promoting long-term economic growth (Bright 2000:10).
Nnanna D.O 2001 correctly states that the success of monetary policy is dependent on the operating economic development.
In Nigeria, the Central Bank of Nigeria (CBN) is responsible for the design and execution of monetary policy.
The Central Bank’s mandates are outlined in the CBN Act of 1958, which include;
v Issue of legal tender cash.
v Maintaining external reserves to ensure the currency’s international stability.
v Promoting monetary stability and a strong financial system.
v Serving as bankers and financial advisors to the federal government.
v Regulation of interest rates is required.
However, the current monetary policy framework concentrates on maintaining price stability, with growth and employment being secondary aims.
According to John Black 2003:235, inflation is a persistent propensity for prices and monetary systems to rise, and it is assessed by the proportional changes over time in some appropriate price index, most typically a consumer price index or a GDP deflator. According to Richard G. Lisped (1978:155), inflation is defined as an increase in level.
This inflation can only occur if the entire price level has doubled. In general, the CBN uses monetary policy to limit the economy’s inflation. On this note, the researcher has decided to do a study on the role of monetary policy in controlling inflation in Nigeria, with a focus on the Central Bank of Nigeria (CBN).
1.2 Statement of Problem
The Central Bank of Nigeria, often known as the Bankers Bank, is in charge of the economy’s monetary and fiscal policy.
The high rate of inflation in the economy has brought immeasurable suffering for Nigerians.
Thus, the role of the CBN in managing inflation through its monetary policy tool becomes the issue to be investigated.
1.3 Study Purpose and Objectives
The study’s goal is to determine the role of the Central Bank of Nigeria in controlling inflation through monetary policies. To attain the stated goal, the following objectives will be used.
1.4 RESEARCH QUESTIONS.
The following questions will guide this research.
v How does the CBN implement its monetary policy?
V. How does inflation influence the economy?
v What are the key inflation indicators?
1.5 Research Hypothesis
The following Hypothesis will be tested as part of this effort.
Null Hypothesis: The CBN’s monetary policy affects inflation.
Alternate hypothesis: The CBN’s monetary policy has no effect on inflation.
1.6 Significance of the Study
This study is important because its findings will be valuable in the following ways:
The government can now make good use of the results of this endeavour.
1.7 SCOPE AND DELIMINATION OF THE STUDY
This study will span fields such as academics, business, and government, to name a few, and its scope will be limited to the subject under investigation.
1.9 Definition of Terms
The terms were defined based on how they were used during the study.
(i) Monetary policy is a set of actions aimed to manage the value, supply, and cost of money in an economy in accordance with the anticipated level of economic activity.
(ii) Inflation: The persistent tendency for prices and money earnings to rise.
(iii) Money: is anything that is usually accepted as payment for goods and services or as the final settlement of debts.
(iv) CBN (Central Bank of Nigeria)
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