CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Inflation, exchange rates, and monetary policy play pivotal roles in shaping the economic landscape of nations, and Nigeria is no exception. As Africa's most populous country and a major player in the continent's economic arena, Nigeria grapples with the intricate interplay of these three key factors. Inflation, defined as the sustained increase in the general price level of goods and services over time, poses significant challenges to the country's economic stability and the well-being of its citizens. A delicate balance must be struck to ensure that inflation remains within manageable bounds, fostering sustainable economic growth. Central Bank of Nigeria. (2022).
The exchange rate, representing the value of one currency in terms of another, is a critical determinant of Nigeria's international trade and investment dynamics. Given the country's dependence on oil exports, fluctuations in global oil prices can significantly impact its foreign exchange earnings, influencing the exchange rate and, consequently, the overall health of the economy. Managing these fluctuations is a complex task that requires a comprehensive understanding of global economic trends and effective policy measures. The Nigerian government and its central bank face the challenge of devising strategies to maintain a stable exchange rate that facilitates international trade and attracts foreign investment. World Bank. (2022).
Monetary policy, as a tool wielded by the Central Bank of Nigeria (CBN), plays a central role in addressing inflation and exchange rate challenges. The CBN implements policies to control the money supply, interest rates, and credit availability, aiming to achieve macroeconomic stability. The effectiveness of these measures hinges on the synergy between fiscal and monetary policies, as well as the adaptability of the regulatory framework to the evolving economic landscape. The intricate relationship between inflation, exchange rates, and monetary policy in Nigeria underscores the need for a nuanced understanding of these dynamics to formulate policies that foster sustainable economic development. Ogunleye, E. F., & Iyoha, M. A. (2017).
1.2 Statement of the Problem
The statement of the problem in the context of Inflation, Exchange Rate, and the role of Monetary Policy in Nigeria revolves around the intricate interplay of these economic factors and their impact on the country's overall economic stability. Nigeria has grappled with persistent inflationary pressures, often exacerbated by fluctuations in the exchange rate. The challenge lies in understanding the root causes of inflation, the dynamics of exchange rate movements, and how monetary policy can effectively address these issues. Factors such as external shocks, fiscal policies, and global economic trends further complicate the scenario. Consequently, there is a need to critically assess the efficacy of current monetary policy measures in mitigating inflationary pressures and stabilizing the exchange rate. Addressing this problem is crucial for fostering sustainable economic growth, maintaining price stability, and ensuring a conducive environment for both domestic and foreign investments in Nigeria.
1.3 Objectives of the Study
The main objective of the study is to examine Inflation, Exchange Rate and the role of Monetary Policy in Nigeria. Specific objectives of the study are:
- 1. Analyze the impact of exchange rate on inflation in Nigeria.
- 2. Evaluate the effectiveness of current monetary policy tools in controlling inflation in Nigeria.
- Assess the role of structural factors in driving inflation in Nigeria.
1.4 Research Questions
To guide the study and achieve the objectives of the study, the following research questions were formulated:
- Has the recent depreciation of the naira significantly contributed to rising inflation in Nigeria? If so, quantify the extent of this impact.
- To what extent has the use of the Monetary Policy Rate (MPR) been effective in curbing inflation in Nigeria? Are there limitations to its effectiveness?
- How do supply-side factors such as infrastructure deficiencies, insecurity, and dependence on imported goods contribute to inflation in Nigeria?
1.5 Research Hypothesis
The following research hypothesis was developed and tested for the study:
Ho: There is no statistical significant relationship between inflation exchange rate and monetary policy in Nigeria.
1.6 Significance of the Study
The study is important for many reasons. The following are the major stakeholders this paper through its practical and theoretical implications and findings will be of great significance:
Firstly, the paper will benefit major stakeholders and policy makers in the Economics sector. The various analysis, findings and discussions outlined in this paper will serve as a guide in enabling major positive changes in the industry and sub-sectors.
Secondly, the paper is also beneficial to the organizations used for the research. Since first hand data was gotten and analysed from the organization, they stand a chance to benefit directly from the findings of the study in respect to their various organizations. These findings will fast track growth and enable productivity in the organisations used as a case study.
Finally, the paper will serve as a guide to other researchers willing to research further into the subject matter. Through the conclusions, limitations and gaps identified in the subject matter, other student and independent researchers can have a well laid foundation to conduct further studies.
1.7 Scope of the Study
The study is delimited to CBN UYO. Findings and recommendations from the study reflects the views and opinions of respondents sampled in the area. It may not reflect the entire picture in the population.
1.8 Limitations of the Study
The major limitations of the research study are time, financial constraints and delays from respondents. The researcher had difficulties combining lectures with field work. Financial constraints in form of getting adequate funds and sponsors to print questionnaires, hold Focus group discussions and logistics was recorded. Finally, respondents were a bit reluctant in filling questionnaires and submitting them on time. This delayed the project work a bit.
1.9 Organization of the Study
The study is made up of five (5) Chapters. Chapter one of the study gives a general introduction to the subject matter, background to the problem as well as a detailed problem statement of the research. This chapter also sets the objectives of the paper in motion detailing out the significance and scope of the paper.
Chapter Two of the paper entails the review of related literature with regards to corporate governance and integrated reporting. This chapter outlines the conceptual reviews, theoretical reviews and empirical reviews of the study.
Chapter Three centers on the methodologies applied in the study. A more detailed explanation of the research design, population of the study, sample size and technique, data collection method and analysis is discussed in this chapter.
Chapter Four highlights data analysis and interpretation giving the readers a thorough room for the discussion of the practical and theoretical implications of data analyzed in the study.
Chapter Five outlines the findings, conclusions and recommendations of the study. Based on objectives set out, the researcher concludes the paper by answering all research questions set out in the study.
