Background to the study
Inflation is a serious macroeconomic problm that creates complications for economic measurement, and brings uncertainty when we try to look into the future. It refers to the persistent rise in general price level leading to disequilibrium and thus undermining the ability of money to serve as a tool for market coordination. One major measure Nigeria has used to control inflation is Monetary Policy. Just as affirmed by (Adedeji & Nuhu 2015: 108), policy makers have tried to adopt appropriate policies that can combat inflation and ensure price stability. While fiscal policy proves helpful in combating inflationary pressure, monetary policy has been the principal tool employed by the central banks to ensure price stability.
Monetary policy, according to Asuquo (2012: 53), refers to measures designed to regulate and control the cost, availability, volume of money and credit in an economy to achieve some specific macroeconomic policy objectives. It relates to the supply of money and credit allocation, which is controlled via factors such as interest rates and cash reserve requirements for banks by Central Bank of Nigeria in order to influence outcomes like economic growth, inflation, exchange rates. Balami, Ahmed, and Yusuf 2016: 68) further noted that interest rates, reserve requirements, open market operations, discount window, etc are some of the tools of monetary policy.
Statement of Problem.
Over the years, various monetary policies have been formulated and implemented, and has led to moderation of inflation in Nigeria. Just as Adedeji & Nuhu (2015:107) put it, monetary policies adopted reduced inflation rate between 2009 and 2012, and also from a high 13.9 per-cent to low 7.9 percent in 2014. However, inflation has escalated to two digits of 12.4percent in April 2016 from 2015.
Also, according to Asuquo (2012: 57), monetary policy measures are taken to control inflation, yet there have been a consistent rise in inflation and many authors and economists have worked on assessing the extent to which monetary policy variables have affected inflation and its control in Nigeria. It is pertinent to note that the impact of monetary policy in controlling inflation in Nigeria is well documented, however, many haven't really addressed the limitation of the policy itself in controlling inflation in Nigeria. Statistics have been given about the fluctuating rates of inflation, and the challenges faced by CBN in using monetary policy to control inflation. Thus, many writings have focused on examining the effectiveness of monetary policy in controlling inflation in Nigeria and their findings is often based on the fact that monetary policy has been ineffective I'm controlling inflation in Nigeria. However, it is germane to note that the effectiveness of monetary policy depends on the operating economic environment, the institutional framework adopted and the choice and mix of the instruments used (Nnanna 2001) in (Asuquo 2012:54).
It is on this note that this study intends to fill the gap in the literature by highlighting the various monetary policies (such as interest rates, money supply, etc) government has used in the past and how these policies have been able to control inflation.
Objective of the study.
The main objective of the study is to examine the impact of monetary policy in controlling inflation in Nigeria. The specific objectives are:
1.) To highlight the role of monetary policy in controlling inflation
2.) To examine the various types of monetary policy that has so far been used in controlling inflation in Nigeria and the extent of their effectiveness.
1.) To what extent has monetary policy controlled inflation in Nigeria?
2.) What is the impact of monetary policy on inflation?
Significance of the study
This study is significant for its timely nature. By exploring the impact of monetary policy in controlling inflation at a time when inflation is rising in Nigeria makes it very significant. Also, government, CBN, and other policy makers will benefit from this topic as it would provide a platform through which the various monetary policies will be explained in terms of how they suit the social-political environment of Nigeria.
Limitation of the study
One major limitation of the study is the constraints of gathering materials.
Scope of study
This study covers the role of monetary policy in controlling inflation in Nigeria. General overview of each monetary policy will be given and how each tackles inflation.
Definition of terms.
1.) Monetary Policy: this refers to the supply of money and credit allocation, which is controlled via factors such as interest rates and Cash Reserve Requirements(CRR) for banks by the CBN in order to influence inflation (Balami, Ahmed &Yusuf 2016:68)
2.) Open Market Operations : this refers to a situation whereby the Federal Reserve buys or sells securities such as treasury notes or mortgage-banked securities from its member banks (Amadeo 2017:1)
3.) Reserve Requirement: this refers to the minimum amount of cash or cash equivalents that banks and other depository institutions such as insurance companies are required by law to keep on hand, and which may not be used for lending or investing (Business dictionary).
1.) Adedeji and Nuhu (2015), 'Monetary Policy and Inflation Control in Nigeria', Journal of Business and Sustainable Development 6(8):108-115.
2.) Ajayi, S. (1998), 'Monetary policy in a developing economy' University of Ibadan press, Nigeria
3.) Amadeo, K. (2017), 'Open Market Operations: How the Federal Reserve's Asset Purchase Program Works', US Economy.
4.) Asuquo. A. (2012), 'Inflation accounting and control through monetary policy measures in Nigeria: Multi-regression analysis (1973-2010)', Journal of Business and Management 1(2),53-63.)
5.) Balami, D., Ahmed F., Yusuf A. (2016), 'Impact of Monetary Policy in Nigeria on Inflation, Exchange Rate and Economic Growth',2(5): 67-82
6.) Business dictionary.