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THE EFFECTIVENESS OF MONETRY POLICY ON THE BANKING SECTOR IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Monetary polices in Nigeria and the United Kingdom, the central bank of Nigeria and the bank of England act as advisers to the government over monetary polices. The authorities take the final decision on the matters. In Germany, the contrast in the case because the German central, the bunds bank of Germany has a constitutional independency in setting the monetary polices. The central bank of Nigeria lender the federal ministry of finance (FMF), we have the central bank of Nigeria and this is the apex of the regulatory institution of the Nigeria financial sector. The bank promotes and maintains monetary stability as well as issuing sound and effective financial system in Nigerian. It issue legal tender i.e. currency note and coins in Nigeria and maintain Nigeria external reserve to safeguard the national value of legal currency. The CBN has the responsibility of formulating and implementing the monetary and exchange rate policies for Nigeria and many other functions that they perform in Nigeria.

The central bank of Nigeria has been able to excise its statutory power through its monetary polices and developmental function in promoting monetary and economic stability. In Nigeria for example, by controlling the, quality and directions of credits, monetary polices and optimum quality of money supply has been maintained and this enhances the economic stability. It development function encourage the establishment of necessary development bank and financial institutions wh8ich assist the economic development.

The effectiveness of any central bank hinges crucially on its ability to promote monetary stability. Attainment of monetary stability rest on the central bank, the ability to involve effective monetary polices and to implement then efficiently. Nigerian bank and other bank were operated without nay control in their availability and supply of money and circulation and this has brought an effect in our economic development and also distress among banks. As time went further, the central bank of Nigeria decided to introduce a new policy called the monetary policy in the banking sector and through the introduction of that monetary policy into banking industries helps many banks and also in our economy to stabilize the value of money.

The central bank of Nigeria introduces this policy with some instrument to the banking activities and such instrument is as follows;

1.open market operation

2. Moral section

3. Legal reserve and etc.

So monetary policy is a vital policy used by monetary authorities to control the availability of money in circulation that will help both in our economy and also in our banking sector.

1.2 STATEMENT OF PROBLEMS

It is quite clear that there has been a recorded progress made by the CBN toward resolving the identified structure imbalance in the banking operation (Akinni 2016) nevertheless, there have been still some problem as to the implementation of the monetary policy in the banking sector.

There is the problem of effectiveness of monetary policy as a tool of banking management. Some of the tool to acess includes the discount rate, legal reserve ratio and open market operation and these tools are expected to Meet up with the challenges of the abnormal and unforeseen demand deposition for repayment of their deposits.

Articulate way of moping access liquidity for the credence of inflation.

To guide and direct the financial institution towards the kind of lending polices pause.

To be effective and efficient toward curtailing the lending ability of bank in the economy

1.3 PURPOSE AND OBJECTIVE

The following are the reason for this study;

1. To make sue that the flow of money equates with the overall banking activities

2. To change the level of money supply from time to time in order to change the level of banking activities.

3. It is design to requate and controls the volume cost and direction of money and credit in the banks

4. It is design to call the bank to order by checking and curtailing the high level of inflation in the bank.

1.4  SIGNIFICANCE OF THE STUDY

The study will be beneficial to the following;

1. To the banking sector.

The study will help the central bank of Nigeria to appreciate the impact of its efforts toward the regulation of the banks through the instrument of monetary policy. it will help the central bank to know it there are still laps prevalent in the policies. It acts as a comparison between the different policies of different time thereby helping the central bank of Nigeria to decide on new measure to adopt.

2. To the government:

The study will be of benefit to the government by helping then to formulate policies, which are consistent with the general economic trend – activity prevalent at any time.

3. To the financial institution

It helps the financial institution as the intermediaries of the central bank of Nigeria to scrutinize their role towards policies implementation. It further help then to correct or to avoid their own errors.

4. To the economy in general:

The study will be of immense benefit to the constituent of the economy by helping each sector or section to make decisions in harmony with the existing economic trend at a time.

5. The production sector:

This is the sector that bears mostly the burden of inflation due to the substantial increase in the cost of manufacturing. The study will therefore enable it to adjust its method of costing and evaluation so as to reflect the change in the economy.

6. To the foreign interest GNP:

This project provide the outside the opportunity of knowing the working mechanism of the Nigeria financial system. It will also help him to know the value of national currency with regards to its purchasing power and the general economic tread.

1.5  DEFINITION OF TERMS

1. Apex bank:

This refers to the central bank of Nigeria known as “the bankers bank”. It control the activities of other banks

2. Inflation:

This is persistence rise in the general price level which cause the purchasing power of nominal money to fall, its rate it measured by consumers price index.

3. Consumer price index:

A simple number showing how on the average the price of a selects number of a selected goods standing relatively to some based year price.

4. Monetary policy:

This refers to the credit control measure adopted by the central bank of a country. It is use to consume the supply of money as an instrument of archiving the objective of general economic policy.

5. Balance of payment:

This term define the trading stands of a particular country with another country with which it engages its trade

1.6  REFERENCE

The identified instrument imbalance in the banking sector (Akinni – 2016)

Whitman D. an introduction to monetary policy (the free press New York. 2016)

The identified instructural imbalance in the banking sector (Akinni – 2016)

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