The Role Of Monetary Policy In The Control Of Inflation In Nigeria

THE ROLE OF MONETARY POLICY IN THE CONTROL OF INFLATION IN NIGERIA

Chapter One

1.1 study background

Monetary policy, which is used as a tool to determine aggregate and average figures in the economy, is one of the most crucial components of macroeconomics.

This takes into account the factors that affect total employment, production, and consumption, investments made to increase the capacity for production, and the volume of imports and exports a nation makes.

In addition, it investigates the reasons behind short-term economic booms and busts and assesses how the general level of prices and the rate of inflation affect the economy’s long-term growth rate (Nwachukwu 1998; 12). Macroeconomics examines how monetary and fiscal policies of the government can and should have an impact on these issues.

It is researched how the economy functions as a whole. In addition, macro economies work to address the issue of supply constraints brought on by excessive consumer demand for a certain good.

But monetary policy specifically deals with regulating the surplus money supply in the economy.

In other words, monetary policy is a set of actions intended to control the price, supply, and quantity of money in an economy in accordance with the anticipated level of activity.

The goals of monetary policy for the majority of economies, including Nigeria, include maintaining price stability, the balance of payments, equilibrium, fostering production and employment growth, and fostering sustainable development.

To achieve internal and external balance and to encourage long-term economic growth, these goals are essential (Bright 2000:10).

The operating economic development is what determines if monetary policy is successful, as stated correctly by Nnanna D.O in 2001.

The design and implementation of monetary policy in Nigeria is the responsibility of the Central Bank of Nigeria (CBN), whose mandates are outlined in the CBN Act of 1958 and include the issuance of legal tender currency.v Keeping external reserves to protect the currency’s global value.v Supporting a stable currency and sound financial system.acting as the federal government’s bankers and financial advisers. requiring interest rate regulation.

The encouragement of growth and employment are the monetary policy’s secondary objectives, whereas the current framework is focused on maintaining price stability.

According to John Black (2003), inflation is the persistent propensity for both prices and the value of money to rise. It is quantified by the proportional changes over time in a suitable price index, most frequently a consumer price index or a G.D.P. deflator. According to Richard G. Lisped in 1978:155, inflation is the term used to describe an increase in level.

The only way this inflation is possible is if all price levels have doubled. In general, the CBN uses the tool of monetary policy to govern the economy in terms of inflation. With reference to the Central Bank of Nigeria (CBN), the researcher has decided to conduct a study on the role of monetary policy in the management of inflation in Nigeria.