Efficiency Of Monetary Policy In Controlling Inflation in Nigeria

CHAPTER ONE                              

1.0 INTRODUCTION

In Nigeria, the central bank is at the apex of the banking pyramids, applies a variety of policy measure and techniques to control and regulate money and credit in order to attain the desired economic goals or objectives. It is therefore necessary and important to use the package of monetary policy measures as basis for discussing the efficiency or otherwise of general economic management strategies.

Government policy statements clearly reveal that inflation became a problem in Nigeria about the early 1970’s. This contention can be substantiated from the fact that the economy began to experience double digit rate of inflation from early part of the decade. The problem of the inflation is not peculiar to Nigeria, but it is a global problem confronting the majority; if not all countries of the world.

The attempt by the Nigeria government to attain a higher level of an economic development at this period, generally led to spiral inflation in the country. But whether inflation in Nigeria is due to monetary mismanagement on the part of the authorities concerned or came by inherent structural deficiencies, still remains uncertain.

Many factors have been identified to be responsible for inflationary pressure in the country. In the process of formulating monetary policies, it is paramount important to specify objectives and also impossible to evaluate performance.

Government policies are to achieve certain objectives which include price stability, high rate of economic growth and balance of payment equilibrium. Monetary policy can be employed in encouraging investment and controlling inflation while fiscal policy can be effective in reducing consumption of luxury and ostentatious goods.

But the major concern of this project is to explore the effectiveness of monetary policy in controlling inflationary pressure in an economy like Nigeria.

It is generally believed by some economists that inflationary effects are quite harmful to some business establishments. This could be so because vendors often loss in the sense that the value of their money falls short of its original purchasing power.

The extent of the effect of inflation in Nigeria has forced Nigeria to adopt several monetary policy measures within. However these policy measures have not solved the problem of inflation as could be seen for the associated increase in the cost of production during the period under consideration.

It is therefore in view of the above that it becomes necessary to example some of the mixed policy instruments used and hence their efficiency as regards inflationary control.

The problems of inflation in reflection to economic growth and development have been extensively discussed. The problem is.

1.1 STATEMENT OF PROBLEM

The problem this study attempts to address is to evaluate the efficiency of monetary policy in controlling inflation in Nigeria.  Also without this study it will be impossible to determine whether monetary policy is efficient in controlling and bringing down inflation to the nearest minimum and to achieve its original objectives.

This piece also do expand and enrich available literature and could provide opportunity for general statement monetary the performance of effective monetary policy in Nigeria.

Studies on the performance of monetary policy in Nigeria and monetary policy programme in general are emerging from the favoured countries.

Steven’s (1992) asserts that abundant evidence is available to support that inflation is a big problem affecting Nigeria economic development.

However, according to him some empirical evidence are not entirely clear in the support of the assertion, evidence from less favored economic environment like Nigeria are either nonexistence or very scanty and untested. Hence, the precise performance of monetary policy can hardly be presently generated.

Not peculiar to Nigerian but has assumed a global phenomenon.

These problems are how: –

1. To identify the policy instruments use in controlling inflation in Nigeria.
2. To find out who is responsible for introducing and enforcing the policies.
3. To appraise their efficiencies since inflation started.
4. To find out which method that will help stop monetary mismanagement as it affects inflation.

These problems listed out are major problems that should be looked into

1.2 OBJECTIVES OF THE RESEARCH

It is necessary to state the primary objective of this research having identified the ruling monetary policy instruments in Nigeria and the economic objective that these are expected to influence.

These are as follows: –

1. This work is set out to investigate the cause of inflation in Nigeria
2. To investigate if Nigerian momentary policy is efficient or not, in the achievement of certain objective of the economy and inflationary control in particular.
3. To see it the non-realization of the economic objective is due to choice of wrong instrument or inappropriate application of the instruments.
4. To recommend policy solutions based on the research findings the policy recommendations based on such findings will then serve as a guide to the further application of monetary policies.

1.3     RESEARCH QUESTIONS

The following questions are relevant to the research;

1. What are the causes of inflation?
2. What are consequences of inflation?
3. Does inflation have any effect on income?
4. Does the level of money stock influence inflationary rate?
5. Can economic growth be constant during inflationary periods?
6. Does inflation hamper economic growth?
7. Can monetary policy measure control inflation?
8. How can inflation be controlled if not estimated?

1.4 HYPOTHESIS

Based on the problem, statement and purpose of study, the following hypotheses were formulated:

H0: There is a significant relationship between the money supply and inflationary rate in the economy

H0: There is a significant relationship between economic growth and inflationary rate in the economy.

Hi:  There is no significant relationship between the money supply and inflationary rate in the economy.

Hi:  There is no significant relationship between economic growth.

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