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THE ROLE OF MONETARY POLICY IN THE MANAGEMENT OF INFLATION IN NIGERIA

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

One of the most important aspects of macro economics is monetary policy which is being used as a tool to determine aggregate and average figures in the economy. This considers what determines total employment and production consumption total, investment in raising productive capacity, and how much a country imports and exports. It also asks what causes boom and slumps in the short run, and determines the long term growth rate of the economy in the general level of prices and the rate of inflation (Nwachukwu 1998; 12) macro economy considers how these matters can and should be influenced by government through monetary and fiscal policies.

The entire behavior of the economy is studied. Beside, macro economies try to solve the problem of supply issues which result due to excess demand of product by consumers. However, monetary policy deals directly with control of excess money supply in the economy. Put differently, monetary policy refers to a combination of measures designed to regulate the value, supply, and cost of money in an economy, in consonance with the expected level of activity.

For most economics like Nigeria, the objectives of monetary policy include price stability, maintenance of balance of payment, equilibrium, promotion of employment and output growth and sustainable development. These objectives are necessary for the attainment of internal and external balance and promotion of long run economic growth (Bright 2000:10).

Nnanna D.O 2001 rightly puts it that the success of monetary policy depends on the operating economic development. The institution frame work adopted, and the choice of the instruments used" in Nigeria the design and implementation of monetary policy is the design and implementation of monetary policy is the responsibility of the Central Bank of Nigeria (CBN).

The mandates of the Central Bank are specified in the CBN Act of 1958 which includes;

v    Issuing of legal tender currency.

v    Maintaining     external     reserves     to     safeguard     the international of the currency.

v    Promoting monetary stability and sound financial system.

v    Acting as Bankers and financial adviser to the federal government.

v    Regulating of interest rate requires.

However, the current monetary policy frame work focuses on the maintenance of price stability, which the promotion of growth and employment are the secondary goals of monetary policy.

John Black 2003:235, inflation means a persistence tendency for prices and monetary way to increase, and is measured by the proportional changes over time in some appropriate price index, commonly a consumer price index or a G.D.P. deflator. In the words of Richard G. Lisped 1978:155, inflation, an increase in the level is called INFLATION.

This inflation can only occur if all price level has doubled. Generally, then CBN controls the economy in the term of inflation using the monetary policy tool. It is on the note the researcher has decided to carry out a study on the Role of monetary policy in the control of inflation in Nigeria with reference to Central Bank of Nigeria (CBN).

1.2   STATEMENT OF PROBLEM

The Central Bank of Nigeria is the Bankers Bank and controls both monetary and fiscal policies of the economy.

The high rate of inflation in the economy has caused untold hardship to Nigerians.

Thus, the role of CBN in controlling inflation using its monetary policy tool becomes the problems to be studied.

1.3     PURPOSE/OBJECTIVES OF THE STUDY

The purpose of the study is to find out the role of CBN in inflation control using monetary policy. To achieve the above purpose, the following objectives are to be used.

1.4     RESEARCH QUESTIONS

For purpose of this study the following question will guide this work.

v    How does CBN implement their monetary policy?

v    How does inflation affect the economy?

v    What are the major indices of inflation?

1.5     RESEARCH HYPOTHESIS

For the purpose of the work, the following Hypothesis will be tested.

Null Hypothesis:  Monetary policy of the CBN affect inflation.

Alternative hypothesis;           Monetary policy of the CBN does not affect inflation.

1.6   SIGNIFICANCE OF THE STUDY

This study is significant since its result will be useful in the following ways;

Government can now play well using the result from this work.

1.7     SCOPES/DELIMINATION OF THE STUDY

This study will cover areas of academics, business, government to mention but few and the scope will be within the area under study.

1.9   DEFINITION OF TERMS

The terms were defined according to how it was used in the study.

(i)             Monetary policy is the combination of measures designed to regulate the value, supply and cost of money in an economy, in consonance with the expected level of economic activity.

(ii)           Inflation: Refers to a persistence tendency for prices and money wages to increase.

(iii)         Money: is any thing that is generally acceptable in payment for goods and services or in the final settlement of debt.

CBN: Central Bank of Nigeria.

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