The Role Of Central Bank In Developing Nigeria Economy

The Role Of Central Bank In Developing Nigeria Economy

Abstract

This exploration work examined the part of Central bank in development of Nigeria Economy( 1986- 2010). Secondary data were used in this exploration work. The thesis was tested to examine the significance of relationship that live between financial policy tools, exchange rate and interest rate on profitable growth in Nigeria. The logical ways used were the simple retrogression analysis while the pupil t- rate was used for the test. From the test, it was observed that a positive relationship was with negative relationship live between the variables. Hence the experimenter concluded that financial policy is an effective tool for profitable growth in Nigeria. And thus recommended that trouble should be made to ameliorate on the quality and the dateless of data generated within and outside the fiscal sector, so that conduct could be taken without important detention in controlling adverse situations.

Chapter One

Preface

Background of the Study

The part of the central bank in promoting public profitable policy and development has in recent times come a topical transnational profitable policy issue. Although the empirical substantiation on the relationship between central bank operations and macroeconomic stability proxied by price stability isn’t conclusive( Folawewo and Osinubi, 2006), the prevailing wisdom supports the need to accord a central bank a reasonable degree of autonomy that will give it substantial discretion to conduct its financial policy in a manner that will help achieve its assumed central accreditation of maintaining domestic price stability, defined as a governance of fairly low affectation rate and an terrain free of affectation prospects.

While financial policy’s end at long- run price stability is critical to fostering sustainable profitable growth, central banks ’ part in promoting growth and, more generally, a healthy frugality goes beyond the conduct of financial policy( Sanusi 2002). Through involvement in fiscal regulation and supervision as well as in the oversight of payments system operations, central banks play a crucial part in conserving and enhancing the safety and soundness of the banking and fiscal system( Alicia and Rio 2003).

The Central Bank of Nigeria( CBN), like utmost central banks in the developing husbandry, undertakes somenon-traditional central bank functions similar as creation of profitable development, especially during the constructive times in the 1960s and 1970s. The donation of the CBN in this regard, was concentrated on the creation of the fiscal terrain and institutional frame conducive to the rallying and channeling of fiscal coffers into productive investment. therefore, during the first decade of its establishment, the Bank concentrated on the task of promoting and metamorphosis of the rudimentary fiscal structure of the frugality. These included the allocation of plutocrat and capital request securities similar as the Nigerian Treasury Bills and Civil Government Development Stocks. also, it handed specialized backing to other applicable institutions, and start- up capital for the development of plutocrat and capital request institutions. The CBN action to encourage long- term bank lending to the frugality included the establishment of colorful refinance and guarantee schemes, concentrated on the precedence sectors of the frugality. Two of similar schemes are the Agricultural Credit Guarantee Scheme Fund( ACGSF), and Export Refinance Scheme.

Statement of the Problem

Given the number of times since the Central Bank of Nigeria was established and the substantial One of the major objects of financial policy in Nigeria is price stability. But despite the colorful financial administrations that have been espoused by the Central Bank of Nigeria over the times, affectation still remains a major trouble to Nigeria’s profitable growth. Nigeria has endured high volatility in affectation rates. Since the early 1970’s, there have been four major occurrences of high affectation, in excess of 30 percent. The growth of plutocrat force is identified with the high affectation occurrences because plutocrat growth was frequently in excess of real profitable growth. still, antedating the growth in plutocrat force, some factors reflecting the structural characteristics of the frugality are observable. Some of these are force shocks, arising from factors similar as shortage, currency devaluation and changes in terms oftrade.The first period of affectation in the 30 percent range( 12 months moving average) was in 1976( CBN, 2009). One of the factors frequently cited for this affectation is the failure in Northern Nigeria, which destroyed agrarian product and pushed up the cost of agrarian food particulars, significant increase in the proportion of the average consumer’s budget. In addition, during this period, there was inordinate monetization of oil painting import profit, which might have given the affectation a financial character. In addition, in the late 1980’s, following the Structural Adjustment Program, the goods of pay envelope increases created a cost- drive effect on affectation. In the long run, it was the structural characteristics of the frugality, coupled with the growth in plutocrat force that restated these into endless price increases. In1984, affectation peaked at39.6 per cent at a time of fairly little growth in the frugality. At that time, the government was under pressure from debtor groups to reach an agreement with the International Monetary Fund, one of the conditions of which was devaluation of the domestic currency. The anticipation that devaluation was imminent fuelled affectation as prices acclimated to the resemblant rate of exchange. Over the same period, redundant plutocrat growth was about 43 percent and credit to the government had increased by over 70 percent( CBN, 2010). In other felicitations the cause of the affectation may also be cited to the worsening terms of external trade endured by the country at that time. It’s possible thus that Nigeria’s inflationary occurrences were anteceded by structural or real factors followed by financial expansion. The third high affectation occasion started in the last quarter of 1987and accelerated through 1988 to 1989. This occasion is related to the financial expansion that accompanied the1988 budget. Though originally the expansion was financed by credit from the CBN, it was latterly sustained by adding oil painting profit( occasioned by oil painting price increase following the Persian Gulf War) that wasn’t castrated. In addition, with the debt conversion exercise, through which “ debt for equity ” barters took place, external debt was reacquired with new original currency scores. still, with the drastic financial compression initiated by the authorities in the middle of 1989, affectation fell, reaching one of its smallest pointsin1991i.e13( CBN, 2010). The fourth inflationary occasion passed in 1993, and persisted through the end of 1995. Though affectation gathered instigation towards the tail end of 1992, it reached 57 percent by the end of 1994, the loftiest rates since the eighties, and by the end of1995, it was72.8 per cent( CBN, 2009). As with the third affectation, it coincided with a period of expansionary financial deficiency and plutocrat force growth. The authorities set up it too delicate to contain the growth of private sector domestic credit and bank liquidity.

nonstop fall of the affectation rate has been endured since 1996 as a result of strict financial programs of the Central bank. It still, increased in 2001, 2003, 2005, and 2008 to16.5,23.8,11.6, and15.1 independently( CBN, 2010; CBN, 2011). Structural factors have proven to be important in the affectation curl. Reduction in oil painting profit( a force shock) led to a reduction in real income, with serious distributional counteraccusations . As workers pushed for advanced nominal stipend, while directors increased mark- ups on costs, an inflationary curl followed. In addition to these factors the government also had a transfer problem in order to meet debt scores. The failure of the financial policy in bridling price insecurity has caused growth insecurity as Nigeria’s record of development has been veritably poor. In pronounced discrepancy to utmost developing countries, its GDP wasn’t significantly advanced in the time 2000. It was 35 times ahead. As numerous profitable pointers show, Nigeria’s frugality has endured different growth stages. The GDP growth rate recorded negative growth in the early 1980s(-2.7 in 1982,7.1 in1983 and-1.1 in 1984). The growth rate increased steadily between 1985 and 1990 but fell sprucely in 1986and 1987 to2.5 and-0.2. Except in 1991 when a negative growth rate of-0.8 was recorded, 1990s witnessed an unstable growth. still, the growth rate has been fairly high since 2001. An examination of the long- term pattern reveals the following temporal swings 1965- 1968 Rapid Decline( civil war times), 1969- 1971 Revival, 1972- 1980 Boom, 1981- 1984- 1991 Renewed Growth, 1992- 2011Wobbling. The main thrust of this study is to estimate the effectiveness of the CBN’s financial policy over the times. This would go a long way in assessing the extent to which the financial programs have impacted on the growth process of Nigeria using the major objects of financial policy as mark.

Objects Of The Study

The main objects of the study are as follows

To examine the nature of the relationship that live between financial policy tools( bank rate, exchange rate and interest rate) in profitable growth in Nigeria.

ii. To offer some recommendations grounded on the findings of the study.

Exploration Thesis

H0 The part of central Bank of Nigeria has no significance impact on gross domestic product.

H1 The part of central Bank of Nigeria has significance impact on gross domestic product.