Impact of Monetary Policy on Nigeria Commercial Banks

Since the Central Bank has the exclusive right to issue money in the economy, it can have extensive influence on the determination of interest rate in financial markets and in the economy as a whole, by adjusting the interest rate on short-term loans to financial institutions. Central Bank interest rates on these loans therefore have the most immediate impact on other short-term interest rates in the money market. By influencing interest rates, monetary policy then has an effect on the savings and expenditure decisions of individuals and corporate.

Regulations: the more unpredictable and indeterminate the monetary condition is, the higher the speed of administrative changes and thus the higher there is need to blend the regulations across all fringes. This gives the financial managers some extra roles so as to conform to all stipulated regulations and to have the experts that can adapt to the administrative changes. They additionally need to have the capacity to impact the approach and the administrative procedure for sake of their organizations.

Bank regulations are based on a general core of principles. Banks have two important economic functions. First, they operate a payments system, in which a modern

A bank is an institution that facilitates financial transactions between the parties. Amongst its standard operations are accepting deposits from the customers, lending money as loan (cite). The major source of income for banks is interest income which is earned on loans given to the customers, business firms and corporations. This very nature of it makes banking institutions so crucial for economic development of any country. Strong banking operations and fundamentals paves the way for higher customer and investor confidence in the company.

This paper will discuss the goal of monetary policy and its impact on the performance of the economy as it relates to such factors as inflation, financial yield, and business. Monetary policy affects all kinds of monetary and financial decisions individuals make in this nation, whether to get a loan to purchase another house or car or to start up a company, whether to expand a business and whether to place savings in a bank, in bonds, or in the stock market. Furthermore, because the U.S. is the largest economy in the world, its monetary policy also has significant monetary and financial effects on other countries.

The second market in the model is the money market of that country. The demand of money for a nation depends on the value of the gross domestic products and the prices of those products. On the other hand, the supply of money is influenced by the monetary policy. The Monetary policy is defined as “the set of central-bank rules, regulations, and actions that determine the availability of bank deposits and currency in circulation, and is the top influence on money supply” (Pugel, 2012, p. 562). In addition to interest rates and the product’s a country produces, a nation’s supply and demand of money can be swayed by exogenous focuses.

Monetary policy has created financial stability and a lesser impact on the economy. In the aftermath of the financial crisis, many financial institutions had little or no options just bear the burden of their immature practices. These financial institutions brought major fatalities into the markets increasing the scope and vulnerability of the financial sectors. According to the Federal Reserve, monetary policy is an action of the central bank to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth.

The bank reforms (especially the recapitalization that specifies a minimum capital base of 25 billion naira for commercial banks), are pursued with a view to making the sector realize its objectives in advancing the economy (CBN, 2006). It is expected that the impact of these reforms will be enhanced

It is against this background, that besides the introduction other parts of the paper are structured as follows. Next to the introduction, the paper takes a look at the structure and development of the Nigerian financial system before explaining the role of the financial system in the Nigerian economy. Next to this is the section that addresses the history of banking reforms in Nigeria and the nature of the reforms. The last part concludes the paper after a critical look at development implications of banking sector reforms.

Monetary policy is one of the two main tools authorities can use to control the course and momentum of the economy. The major indicators of a prosperous state at present – price stability, unemployment and growth – are proven to be influenced by the supply of money which makes the various forms of monetary policy an important and widely examined subject matter. The prominence of monetarism was first emphasized by Milton Friedman and Anna Schwartz in their book “A Monetary History of the United States” (1963) which argues that the Big American Depression in the 1930s was exacerbated by inadequate monetary policy. Ever since, economists and politicians alike have given monetary policy its deserved attention when attempting to steer the economy.

Understand the role of money and its impact on the economy and measurement of money in an economy. History of

The Central Bank of Nigeria Act of 1958(CBN) vested the monetary policy powers of economic stability on the apex regulatory bank (CBN).Since our independence in 1960,CBN has operated a fixed exchange regime which was at various times was at par with the British pounds and later the United States Dollar. This exchange rate regime was operated in addition to administrative controls on foreign exchange to ensure macroeconomic goals of government are achieved.

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.

Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank.

The most important acknowledge is to our Lord Most Merciful Most Wise by Whose mercy we were able to begin this project, His Mercy is such that unworthy slaves like ourselves are given the ability to work hard and to be grateful towards all He has given us.