The Role Of Monetary Policy In The Control Of Inflation In Nigeria

Project and Seminar material for Accountancy

Abstract

In there days there is uncontrollable inflation rate in Nigeria economy. This is so because the cost of saw materials are two high and there exist the so called Nigeria factors

Nevertheless, this research work has examined the roles played by the monetary authorities (CBN) towards ensuing the introduction of monetary policy to control inflation in Nigeria

Chapter one of the research work showed the introduction, statement of problem, research question, objective of study, scope of study, significant of the study and definition of terms.

Chapter two showed the literature review white chapter three highlighted the research methodology, population and sample size.

Adequate analyses are made in chapter four from the available introduction as regards the benefits of the monetary policy.

In addition important recommendations are made in chapter five towards the integration and up determent of good conduct of monetary policy.

Chapter One

Introduction

1.1 Background Of The Study

Mortuary policy is policy which deals with the discretionary control of money sypply by the monetary authorities in order to achieve stated or desired economic goal (S.B falegan 1978). the monetarist believe that study and slow growth in the money supply is the best policy to follow. They argue that increase in the money supply ibat is about an increase in the purchasing power of the people and the result is inflation in the federal government, though the ministry of finance and the carnal bank of Nigeria are responsible for these policies. The central bank of Nigerian issues a monetary policy circular at the beginning of every fiscal year containing details of the goernement new monetary polices.

The Keynesian view is that monetary policy should be directed at interest rates rather than money supply and that monetary policy should at all times be subsidiary to fiscal policy. In general monetary policy refers to the combination of measure designed to regulate the value supply and cost of money in an ecology in conconance with the expected level of economic activity hence. It is signed to influence the behavior of the monetary variable aggregate policy conduct is at the instance of the monetary authorities to stabilize the economy.

This is in line with the views of monetarist who emphasis the role of money in explaining short tem changes in natural income. Millon freeman for example proved that cnages in money supply cause changes in natural income. And to stabilize the monetary sector therefore, the discretion any measure are applied desires portfolio to asset also considered.

Consequently, the monetary authorities must attempt keep the money supply growing at an appropriate state to sure sustainable economic growth and maintain internal and external stability. This discretionary stability thus, involves the expansion of prevailing economic condition and thrust of policy.

Two type of monetary policy are

Expansion on a monetary ease policy
Stringent or tight monetary policy

1. Expansion ease policy is said to be a monetary ease policy when the monetary authority decides to increase the supply of money or reduce the cost of money in the economy so as to stimulate an increase in economic activities.

2. Stringent or tight monetary policy:- it does the opposite of expansionary policy, monetary policy is said to be polices that will reduce the supply of money or increase the cost of money in the economy in order to generate a contraction in the economic activities.

Inflation on the other hand is defined by Nwankwo (1977) as increase in the volume of credit relative to available goods resulting in a substantial and containing rise in the gene real price level. He also listed the characteristic of inflation as

An increase in demand
A limitation of supply
An increase in the supply if money there is a struggle of the community for the limited supply of gavels.

Inflation has influenced Nigeria as a whole in various ways which has been controlled by monetary inflation demand pull inflation, galloping inflation and hyper-inflation. This research project is on the rate of monetary policy in the contract of inflation in Nigeria. It seeks to find out the exact relationship (in terms of monetary policy that exists between monetary policy and inflation. The researcher does this by analysising the data on the two variables with ultimate aim of evaluating, verifying, reflecting or modifying the stated relationship (in terms of monetary policy effect which exist between the two variables.

This project is made up of five chapter the succeeding chapter review all the literature related to the research variable. The review being exhaustive an nature provides a comprehensive insight to these variables. Thus having it possible for money lenders to be acquitted with the variable what monetary policy and inflation is all about the exhaustive nature of the literature review is made possible by the made range of books consulting prior to its complication.

Chapter three introduces the research design and methodology used is the research work, it explains the method of data collection, population and sample method of data analysis and tools used analyzing complied data.

Chapter four introduces the presentation, analysis and inter presentation of data chapter five summarize research project, conduction and recommendation of the research project.

1.2 Statement Of The Problem

This research work is set to know why the rate of inflation in that adopted by the monetary policy to control it also at finding out why monetary policy measures adopted the government in thus the period of 1995 to 2005 did not solve the problem of inflation in Nigeria.

1.3 Objective Of The Study

This study attempts to identify the following

The role of monetary policy in the control of inflation in Nigeria from1995-2005
To bring out problems (if any) militating against the realization of this role .
To give recommendation where necessary for the improvement or modification of the monetary policy.

1.4 Research Questions

Has monetary policy been effective in controlling inflation in Nigeria?
Is the rate of inflation in Nigeria economy directly related to the supply of money?
Has monetary policy played any role in controlling inflation in Nigeria.

1.5 Significant Of The Study

It is hoped that this study would be of help and benefit to the banking industry and the inflation can be central bank of Nigeria (CBN) it center more on how inflation can be controlled, thorough monetary policy in Nigeria. This could be in form of pen market operation interest rate, improving banking policy and so on. The impact of effect of rising price of goods and services will be exmised.

This studies especially the CBN of apply the most effective role of monetary policy in the central of inflation in Nigeria. The study will be to the mental horizone of the researcher to be able to embrace similar tasks in future.

1.6 Scope Of The Study

This research work covers the use of monetary policy in the Nigerian economy it also shows the government through the central bank of Nigeria achieve the economic objective of the government using monetary policy. These research also went further to know how monetary policy can be used to control inflations.

1.7 Limitation Of The Study

The limitations of the study are as follows

Time :

These wasn’t mush time to go for further research analyze more facts because of the nature of this semester hence limiting my effectiveness and by extending my research finding.

Finance:

This was the painfully problem I encountered when being for research due to the fact that didn’t have enough money that could be enough for carrying out the research hence frustrating me in my effort to generate more data.

1.8 Definition Of Terms

Some terms in this study are defined to guide the readers who may be unfamiliar with the topic, monetary policy is defined as a deliberate manipulation of the cost volume ad direction of money and credit objectives.

Monetary authority is defined as the machinery government that formulate and execute monetary policy on Nigeria, the monetary authority is regarded as the federal executive council, the ministry of finance and CBN inflation. This is the continuous or intermittent rise in the price of goods & services.

Chapter Five

Summary, Conclusion And Recommendation

1.1 Introduction

The purpose of the study is to identify the role of monetary policy in the country of inflation in Nigeria. Chapter one presented brief history of monetary policy introduction, the problem statement of problem, research question, significance of the study ant the last but not the least the definition of terminology.

Further, chapter two presented the literature server\e what inflation is cause of inflation, the role of monetary pociy in the control of inflation in Nigeria and the meaning of data collection and sources. The percentage method is used in analysis techniques.

Chapter four deat with the presentation of data, the analysis of data interpretation of data while summary, confusion and recommendation are treated in chapter five.

5.2 Conclusion Of Findings

This research has intentionally concentrated on the role monetary policy on the control of inflation in Nigeria following the result of the research work done in chapter four, we concluded that inflation rate in Nigeria economy is directly related to the supply of money. Also the monetary policy has been effective in controlling inflation in Nigeria.

Finally the respondent also identified the role of monetary policy, level to stabilize the exchange rate to achieve equilibrium in the balance of payment and to promote economic development and also the instrument of monetary policy (bank rate open market operation and reserve ration). The various role of monetary policy in the control of inflation was adequately treated and examined.

5.3 Recommendation

Based on the finding of this research work, make the following recommendation

Routine market research should be conducted on a regular basis to determine the inflation value on the materials before applying each interment of monetary policy. This will help for updating of knowledge on current price of goods and services and the cause of inflation.
Where by the open meaket operation does not prove very effective the bank rate should be applied. This is an attempt to control the commercial banks leading capacity,there by prices are checked from rising.
All the monetary policy instruments should be effectively applied as at when due so as to achieved a stable economic atmosphere.
A market determined interest rate structure will be sustained while the CBN will indirectly influence the level and direction of interest rate through minimum rediscount rate (MRR) which is the normal actor of the banks interest rate policy.