Effect of Monetary Policy in Nigeria

Monetary policy, ‘The government’s policy relating to the money supply, bank interest rates, and borrowing’ (Collin: 130), is another tool available to the government to control inflation. Figure 4 shows, that by increasing the interest rate (r), from r1 to r2, the supply of money (ms) is reduced from Q1

Monetary Policy is the procedure by which the financial expert of a nation, similar to the national bank or cash board, controls the supply of money. Regularly focusing on a inflation rate or interest rate to guarantee value solidness and general trust in

Basically, in the monetary policy, there are two broad categories. These are the expansionary and contractionary. On the general view, the expansionary policy functions to increase the money supply. This is mostly with the view of reducing the unemployment levels in the country. On the other hand, the contractionary monetary policy serves to slow the rate at which the money supply grows. This is usually in an effort to reduce inflation rates in the country. For these policies to work, however, they must be implemented. For these, there are generally about three ways of implementing the policies. These are termed as tools and they basically include the open market operations, the discount rate and the reserve requirements(Langdana, F. K. p.67)

The purpose of the report is to discuss the role of the central bank, the Bank of England. The most important role of the Bank of England, the way it is run to maintain the overall financial stability of the UK economy. For purposes of sustaining the ongoing economic activities. This report will be focusing on the Bank of England role 's in the United Kingdom. One of the many roles of the Bank of England is to ensure that financial institutions do not collapse. The report will briefly discuss the role and definition of the central bank and its executive branch that leads and manage the Bank of England to run smoothly. Moreover, the report will also look into the key role of the central bank. On the other hand, the report will also discuss the issue of the bank of England as the lender of last resort (LOLR), the central function of all the central banks in the world. Apart from that, the monetary policy of the Bank of England will also be discussed in this report. The application of the researches and the search methods in this report varies, which include both the electronic sources are by an electronic journal, Bank of England website, and online newspapers while the books sources are by the textbook, Financial Times guides, research papers and etc. All those sources are deemed to be from reliable sources with definitive and specific references.

Monetary policy uses changes in the quantity of money to alter interest rates and in turn affect the level of overall spending. The object of monetary policy is to influence the nation’s economic performance, as measured by inflation, the employment rate and the gross domestic product, an aggregate measure of economic output. Monetary policy is controlled by the Central Bank and influences money supply.

If the economy suffers from inflation, the Government will like to check it. Then its Central Bank should adopt tight or contractionary monetary policy. To control inflation the Central Bank of a country can reduce money supply through open market operations by selling bonds or government securities in the open market and in return gets currency funds from those who buy the bonds. In this way liquidity in the banking system can be reduced.

the Central Bank of Nigeria (CBN) have unfortunately been unable to keep the pace with the rapidity

pursue price stability over the medium term, and it can operate without coordinating with other policy

Central banks use a money based policy to minimize inflation. They have diverse ways that they do this. For example, the most common way is by raising the rates of the interest and selling securities through open operations in the market. The use of a multiplication of related money within a policy to lower unemployment and avoid the period where people and businesses make less money. The lower the rates of interest will only buy securities from different banks and cause liquidity to increase. In a perfect world, a money based policy should work beside with the national government's policy. However, it rarely works this way. That's because government leaders get re-elected for decreasing taxes and expanding spending. This would mean rewarding people that actually vote and obtain series of actions to reach a goal of contributors that result in a direct, but in an upsetting way. As a result, a policy like a Monetary Policy is usually involves expansion related topics. However, to avoid a great inflation, the policy must be serving to severely limit or control

Furthermore, banks act as a conduit for the transmission of monetary policy. They provide a veritable platform when it comes to the implementation of monetary, credit, foreign exchange, and other financial sector policies of the government. Among other things, monetary policy is designed to influence the cost and availability of loanable funds with a view to promoting non-inflationary growth. The instruments available to the Central Bank to achieve this include open market operations (OMO), the cash reserve ratio (CRR), liquidity ratio (LR) and of course, moral suasion. The capacity of the banking industry to perform these functions effectively is, to a large extent, determined by the financial health of the individual institutions themselves and soundness and viability of the industry as a whole. For instance, where the majority of banks are adjudged to be weak and unhealthy, that will impair the ability of the industry to lubricate economic growth and vice versa. Against this background, the objective of this presentation is to examine the extent to which the banking industry has helped to stimulate economic activities in Nigeria and what the prognosis looks like in the post-consolidation era, come January 2006.

response of Nigerian banks to this new trend and examines the extent to which they

Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put

It widely recognized that the monetary policy within a country should be primarily concerned with the pursuit of price stability. However, it is still not clear how this objective can be achieved most effectively. This debate remains unsettled, but an increasing number of countries have adopted inflation targeting as their monetary policy framework. (Dr E J van der Merwe, 2002) This topic of Inflation targeting is a subject which immediately conjures different perceptions from different people. Many feel that low inflation should be a main aim of monetary policy, while others (such as trade union activists) believe that a higher growth rate to stimulate jobs should be the main concern.

In every country of the world, exchange rate level is the paramount target of economic policy targeting. In other words, exchange rate policy should be geared towards the attainment of long-term equilibrium rate, so as to achieve certain macro-economic objectives e.g. balance of payments equilibrium, through proper management of the Nigerian exchange rate policy. The country started operating the floating exchange rate system in 1986 after the introduction of SAP. It was expected that the country experience development but the reverse was the case because the country suffered consistent hopeless development situation as her naira depreciates often against other foreign currencies, especially the dollars which was universally accepted as the global medium of exchange. Before the floating system was introduced, $1=NO.89 but after that in 1966 we have $1=N22.05 and even today we have $1=N150.7 .This is quite disheartening, regardless of the effort of the government of Nigeria through the activities of the regulatory body such as the establishment of second tier foreign exchange market (SFEM) in 1986 and interbank foreign exchange market (IFEM) in 1989 and currently the foreign exchange market (AFEM) in 1995.