Monetary policy as a technique of economic management to bring about Sustainable economic growth and development has been the pursuit of nations and formal articulation of how money affects economic aggregates dates back the time of Adams Smith and later championed by the monetary economists. Since the expositions of the role of monetary policy in influencing macroeconomic objectives like economic growth, price stability, equilibrium in balance of payments and host of other objectives, monetary authorities are saddled the responsibility of using monetary policy to grow their economies. In Nigeria, monetary policy has been used since the Central bank of Nigeria was saddled the responsibility of formulating and implementing monetary policy by Central bank Act of 1958. This role has facilitated the emergence of active money market where treasury bills, a financial instrument used for open market operations and raising debt for government has grown in volume and value becoming a prominent earning asset for investors and source of balancing liquidity in the market. There have been various regimes of monetary policy in Nigeria sometimes, monetary policy is tight and at other times it is loose mostly used to stabilize prices. The economy has also witnessed times of expansion and contraction but evidently, the reported growth has not been a sustainable one as there is evidence of growing poverty among the populace. The question is, could the period of growth be attributed to appropriate monetary policy? And could the periods of economic down turn be blamed on factors other than monetary policy ineffectiveness? What measures are to be considered if monetary policy would be effective in bringing about sustainable economic growth and development? These are the Questions this study would attempt to answer.
The objective of this study therefore, is to assess the impact of monetary policy in Nigeria, specifically, if it has facilitate growth or not and examine the effect of other co-operant factors in bringing about the desired sustainable economic development in Nigeria. For this purpose, the paper is divided into four sections. The first section is the introduction, the second section is the theoretical framework and Literature Review, the third section is the methodology, the fourth section discusses the result of the study and the fifth section concludes the work.
All over the world the major preoccupation of the apex bank is the formulation and implementation of monetary policy. This is predicted on its use as a tool to enhance the macroeconomic environment, particular an efficient financing system/market, to promote economic growth. In developing economies, the central bank is further entrusted with other developmental function with a view to engendering rapid economic development. In pursuance of these objectives, central bank are usually given the core mandate of maintaining internal and external value of the currency, which in the domestic economy; translate to keeping inflation low and stable. Central banks undertake an evaluation of economy, which form the basis for monetary policy formulation and implementation. To the extent that monetary policy is a tool for macroeconomic management, its application varies from country to country and produces different results.
It uses instrument, which its effects may be uncertain and may make use of information that may not be complete about the economy and its prospect, especially in a market economy. Thus of unintended outcomes and dissatisfactory performance of monetary policy often compel monetary policy designs to look for alternative framework. Monetary policy Influences the level of money stock and /or interest rate i.e., availability, value and cost of credit in consonance with the level of economic activity. Macroeconomic aggregate such as output, employment and prices are, in turn, affected by the stance of monetary policy through a number of ways including interest rate or money; credit; wealth or portfolio; and exchange rate channel (Akhtar, 1997; pass etal, 1991; CBN, 1995).
The monetary authority applies their money either more expensive or cheaper depending on the prevailing economic conditions and policy stance, in order to achieve price stability. This is why Wrightsman (1976), concludes that monetary policy is nothing but a deliberate attempt to the money supply and credit condition for the purpose of achieving certain broad economic objective. In general, most monetary authorities or central banks have been saddled controlling inflation, maintaining a healthy balance of payment position to safeguard the external value of the domestic currency and promoting economic growth.
In Nigeria, the Central Bank of Nigeria (CBN) is a sole monetary authority. Its core mandate is to promote monetary stability and evolve an efficient and reliable financial system through the application of appropriate monetary policy instrument and systematic surveillance. The 1958 Act establishing the Central Bank of Nigeria gives it the following specific functions (which have endured the 2007 CBN Act):
- Issuance of legal tender currency notes and coins in Nigeria;
- Maintenance of Nigerian’s external reserves;
- Safeguarding the international vale of the currency;
- Promotion and maintaining of monetary stability and sound efficient financial system in Nigeria; and lastly;
- Acting as banker and financial advice to the federal government.
Embedded in these objectives are two separate but highly related roles: A developmental role and financial surveillance (stability) role. The roles demand, among others, that the CBN focuses both price stability and growth. In other to ensure the realization of goals of price stability and economic growth, the CBN deploys its monetary policy instrument in such a way as to ensure growth outcomes. It follows therefore that efficient conduct of monetary policy is a major responsibility of the Central Bank of Nigeria.
This is also true of most central banks. Monetary policy compliments other economic policies to achieve government’s overall macroeconomic objectives of internal balance and external viability. Monetary policy is usually confronted with the problem of managing excess liquidity, rapid expansion in credit as well as excess foreign exchange and capital inflow, particularly in resource endowed economies. In some other economies, mostly industrialized economies, monetary policy may be applied to tackle the problem of liquidity shortage and its uneven distribution as well as inflationary pressure arising from overheating of the economy.
The monetary policy process is a fairly complex process involving objectives and target settings, monetary programming, choice of nominal anchor, policy instruments and the instrument framework for monetary policy implementation as well as communication and evaluation of outcomes. This research therefore, tends to evaluate monetary policy framework in Nigeria issues, problem and prospect.