Economics Project Topics

Monetary Policy and Inflation in Nigeria Economy (A Case Study Central Bank of Nigeria (CBN) Kaduna)

Monetary Policy and Inflation in Nigeria Economy (A Case Study Central Bank of Nigeria (CBN) Kaduna)

Monetary Policy and Inflation in Nigeria Economy (A Case Study Central Bank of Nigeria (CBN) Kaduna)

Chapter One


  • To provide the readers with broad knowledge of the different activities carried out by the Central Bank of Nigeria in Nigeria’s macro-economic stabilization process.
  • Enlighten students, readers and researchers on the significance of Central Bank of Nigeria and it’s role in the process of Nigeria economic development.
  • To highlight the relevance of monetary policy in combating inflation.
  • Try to explain the various types of monetary policy that can be used to combat inflation and other macro-economic problems.
  • Identify and discuss the monetary policy problems with particular reference to Nigeria.
  • To explain the various instruments of monetary policy that can be used to combat inflation especially in less developed Countries (LDCS) such as Nigeria.



The essence of the review of the literature on existing research works or issues concerning the evaluation of monetary and fiscal policies and their impact on the Nigerian economy, is to adopt the salient features already established as well as identified and address the crucial issues that have not be adequately or properly resolved so far. Consider the limited resources of government finances especially in view of the crucial role money has been recognized to play in the process of economic growth and development in developing economies like Nigeria.

The acceleration of the peace of economic development normally leads to urgent and huge financial requirements of funds over and above revenue (budget deficit), which is financed by borrowing from financial system (banks and non-banks), the private sector and from abroad. Since the financial market is relatively under-developed much of the borrowing is made from either the banks (Central and Commercials) and from abroad. For all these, money supply would be affected by the implementation for the budgetary decisions, hence monetary and fiscal policy would be compounded and monetary-fiscal policy mix would be prevalent.

Government aspiration towards the achievement of abroad economic objectives enumerated earlier could be pursued using the means of monetary, fiscal or monetary –fiscal policy –mix strategies. However, the relative effectiveness of monetary and fiscal policies and the lags with which they affect economic activities have been controversial issue among economists and the debate forms one of the major areas on which monetarists and Keynesians continue the study in monetary economics.

Theoretical macrostatic analysis of monetary and fiscal policies is done within the framework where money supply and government expenditure are crucial variables and LS and LM represent fiscal and monetary policy equilibrium situation respectively.


A lot has been written about monetary policy and inflation in Nigerian economy. Such written materials are in the form of articles published in journals and textbooks by both local and foreign authors.

According to S. B Falegan (1978) his definition of monetary policy is this. Policy which deals with the discretionary control of money supply by the monetary authorities in order to achieve stated or desired economic goals.

Sam A. A. (1986) an authority in Economics and Finance was of the opinion that “monetary policy is the attitude of thee political authority towards the monetary system of the country. It embraces such subdivisions as currency and credit management discount or interest rates, debt management and foreign exchange rate prices and income policies and foreign exchange rates prices and incomes policies”.

Also argued that monetary policy would include measures dealing with rent, physical controls, budgets, expert derives, import restrictions and employment measures in so far as their primary aim is to influence the volume of money supply in the economy.

In E.D.C. Mgbojikwe’s (1988) (area office manager A.C.B. Ltd Enugu) view: Monetary policy as the management of the expansion and contraction of the volume of money in circulation for the specific purpose of achieving certain declared national objectives.

He further stated that monetary policy is easily recognizable where the monetary authorities have clearly defined objectives such as domestic price stability maintenance of healthy balance of payments position and the application of instruments of monetary and credit control to regulate the quantity of money in order to achieve the desired objectives.

E.D.C. Mgbojikwe (1988) a paper he presented at the seminar enunciated that monetary policy is designed to achieve the following:

  1. To reduce the excess liquidity in the economy so as to moderate price increase thus combating inflation.
  2. To cut down on the importation of luxury commodities thereby reducing the pressures on the balance of payments.
  3. To encourage more efficient use of money through a more realistic interest rate structure which encourages the mobilization of savings.

Ojo and Ajayi (1981:135) also added that monetary policy suffers from some defects and equally changes according to periods. Uzoaga quoting extensively from Albert G. Hart Submits that monetary policy as a stabilization measures suffers from a number of defects. There is the uncertainty about the exact effectiveness of the monetary authorities, ability to tighten or liberalize credit conditions through general monetary controls. The uncertainty is supported by the availability of close substitutes for money such as highly liquid assets in the form of government securities and savings accounts. The availability of such close substitutes makes the demand for money more elastic and tends to cushion the impact of a change in the quantity of money.

Ojo and Ajayi (1981:137) Money and Banking analysis and Policy in Nigeria context page 171 and 172, there is also the uncertainty about the effect of tightening or loosening credit on aggregate demand.

Afolabi (1993:223) defines Monetary policy as those measures taken by the monetary authorities to control the cost quantity and direction of credit to achieve national objectives”.

Oresotu (193:160) argues that monetary policy is a package of actions designed to manage the growth of money supply during a period to its centivan target which when successful the level of money becomes compactable with the rate of growths of output, inflation and interest rate.


Generally, monetary policy refers to the combination of measures designed to regulate the value, supply and cost of money in an economy in consonance with the level of economic activities. An excess supply of money, which will cause rising price or a deterioration of the balance of payments position. On the other hand, an inadequate supply of money could include stagnation in the economy and thereby retard growth and development of thee economy. Consequently, the Central Bank or Monetary authority must attempt to keep the money supply to grow at a desirable rate to ensure sustainable economic growth and to maintain exchange rate stability of the national currency.

Furthermore, Johnson (1962:70) defines monetary policy as a policy employing the Central Bank’s control of the money supply as an instrument for achieving  the objectives of economic policy.

Similarly, from the synthesis of most of the literature and in the context of the Nigerian situation, Ubogu (1985:35) defines monetary policy as an attempt by the monetary authorities to influence the level of aggregate economic activities controlling the quantity direction of money and credit availability. While Asogu (1998:32) defines Fiscal Policy as the use of government expenditure, taxes borrowing and financial administration to further rational economic objectives.

Looking at the above definitions, it had been noted that money supply and government expenditure the two key instruments of monetary and fiscal policies significantly affect economic activities. The point to note is that government expenditure, however defined plays cardinal role in fiscal policy. Besides, money supply changes may result from fiscal actions depending on the method that government uses to finance its expenditure. Fiscal policy is a powerful instrument of stabilization. By fiscal policy, we refer to government actions effecting its receipts and expenditures which we ordinarily takes as measures on the government’s net receipt, its surplus or deficit.


Solow (1979) defines inflation as going on when one needs more and more to buy some representative bundle of goods and services, or a sustainable fall in the purchasing power of money. As Johnson (1972) notes, and for most purposes, inflation is generally trend in the general price level of the economy. When prices are rising rapidly, the picture becomes obscured and out of focus, decision maker cannot see clearly, e.g. business accounting is done in naira terms. When there is rapid inflation, some business accounting systems may report profits when on a more accurate calculation might be suffering losses.






Research is a process of arriving at dependable solutions to a particular problem through planned and systematic collection, analysis  and interpretation of data. It is devoted towards finding the conditions under which a certain phenomenon occur and the circumstances under which they occur.

Research is an important tool for advancing knowledge for promoting progress and in enabling the researcher to relate effectively between two or more variables and developed a concept or techniques of improving providing a channel for further investigation.

The techniques to be discussed in this research work were well understood to provide the research, with high degree of adequate data and information for further analysis.


Sampling is the act of collecting information by selecting a few from the whole population from which conclusion can e drawn relating to the whole population.

Population is any group of people or objects, which are similar in one or more ways and which form the subject of the study in a particular survey.

However, for the purpose of this research work, the population is the senior staff of Central Bank of Nigeria (CBN) Kaduna Branch.




In this chapter, the information gather through questionnaire is tabled and analyzed to enable the researcher deduce appropriate and valid conclusion. The researcher issued twenty-five (25) questionnaires to both senior and junior staff of the central bank of Nigeria (CBN) out of which twenty (20) were returned representing 80% success rate.




The focus of this chapter is to present the summary of the major roles of Central Bank (CBN) in the implementation of policy and control inflation in Nigeria economy.


The followings are the major findings of the study;

  • The study discovered that the current economic crisis as well as the slow economic growth in Nigeria is as a result of non-implementation and credit policy guidelines particular under military regime that continuously interfered with the implementation statutory functions of the Central Bank of Nigeria.
  • It was revealed that Central Bank of Nigeria was not given a free hand to formulate realistic economic policies without unnecessary interference by the government of the day, this has weakened the Central Bank of Nigeria’s ability and power to meet the set target particularly as it affects the economic development of Nigeria
  • Finally, the study also found that corrupt practices and favouritism in appointment to key position in the Central Bank of Nigeria


In the light of the findings of this study, the researcher can safely conclude that the instruments i.e. Open Market Operations, cash Reserve requirement, Liquidity ratio interest rate policy, Discount Window Operation stabilization Securities, Bank Credit expansion etc. of monetary policies can be allowed to effectively used and the central Bank of Nigeria is allowed to prosper the objectives of monetary policy, price stability, stable exchange rate of the naira, employment and external sector performance could be achieved.


Based on the findings and conclusion drawn, the researcher presents the following recommendations:

  1. The Federal government of Nigeria should give autonomy to the central bank of Nigeria on all monetary matters dealings in foreign exchange transaction and other national and international finance transactions without any interference of any person or group of persons no matter how highly placed.
  2. The management of the Central bank of Nigeria should be given free hand to formulate sound economic policies that would improve the economic well-being of Nigerians and facilitate the development of the Nigerian economy..
  3. The Central bank of Nigeria should re-focus its attention on a achieving the rate of the art technology especially in the areas of information and communication. This will assists it in the effective performance of its functions notably in the areas of monetary management clearing and payment system effect regulation and supervision, foreign exchange management, debt management, capacity building and contributory to financial innovation and technological development in the financial system.
  4. The central Bank of Nigeria should concentrate on its core functions which include the maintenance of monetary stability and development of sound financial system and leave non-central banking functions which have constrained the effectiveness of the Central Bank of Nigeria


  • Ahmed, A. (1991).            “Indirect Monetary Control in Nigeria Problems and Effects Central Bank of Nigeria Billion, Central Bank of Nigeria Research Department, Vol. 16 No. 1, January and March 1991.
  • Ajayi, S. I. & Ojo, O. (1981)   Money and Banking analysis and policy in Nigeria Context, George and Irwin, London.
  • Central bank of Nigeria “Monetary Policy Circular’ No. 35 2001.
  • Central bank of Nigeria: Annual Report and Statement Account for Various years 1988 – 2006
  • Oduyemi, S. O. (1983). Open Market Operation (OMO) as an Instrument of Monetary Policy in Nigeria. Administration, Problems and Prospect Central Bank of Nigeria, Economic Financial review and economic Vol. 31 No.1 March. 1983. “Economic”.
  • Odozi, V. A. (1994)  “Government Policy in Relation to Foreign Exchange Management” CBN Bullion July – September.
  • Ogwuma, P. A. (2006).     The Role of Central Bank of Nigeria (CBN) in Monetary and Banking Policy Measure”. Being a Lecture delivered by Central Bank of Nigeria (CBN) Governor at Inauguration Ceremony of the House Committee on Finance 10th November, 2006, Abuja.
  • Olade, J. O. (1998).          An Economic Analysis of the Relative Potency of Monetary and Fiscal Policies in Nigeria Economic and Financial Review Vol. 21 No. 1 1998.
  •  Adewumi, W. (1982)        Banking and Finance in Nigeria, Graham, G. Burn London.
  • Uzuaga, W. O. (1981).      Money and Banking in Nigeria Theory and Evidence; Fourth Dimension Publishers, Enugu.



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