The Impact of Monetary Policy in Controlling Inflation in Nigeria

The Impact of Monetary Policy in Controlling Inflation in Nigeria

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Monetary policy entails the government policies aimed at changing the quantity of money or credit condition for example, open market operation or changes in required reserved ration etc. Monetary policies involves changes in the quantity of money held by the public. In our economy, there are two types of money most obviously- the naira bills and coins which  you have in your pocket and money. In every economy, after fiscal policy, the next most powerful macro-economic stabilization is monetary policy.

In fact Monetary and fiscal policies are expected to work together as complements to achieve one goals of a sound macro economic management that include amongst other domestic price stability external sector viability as well as enhance efficiency in resource allocation, distribution and utilization.

Monetary policy is therefore measure designed to regulate and control the volume, cost, availability and direction of  money and credit in an economy to achieve some specifically micro-economic objectives. It is one policy that seeks to influence economic activities using the tools available to the central bank i.e. money supply (MS) interest rates and exchange rates. It can also mean the deliberate attempt by the authorities to either control the supply of money or to control interest rates or to ration the amount of credit granted by banks.

HISTORICAL BACKGROUND OF THE STUDY

The history of economic growth shows that, economic transformation started in England in the Late eighteen century and gradually spread to other parts of Europe and North America. Economic transformations did not get to other parts of thee world until in the 1950s when Japan transformed to become one of world’s major industrial giants. This economic transformation has spread far and wide in the recent times but its spread is highly limited in Africa. It is only South Africa that has experienced it so far. This is clearly demonstrated by the World Bank report of (2001) which states that out of the 46 poorest countries in the World, 35 of them are in Africa.

Nigeria with it’s vast resources of both human and material nature is not left out of the club of poverty stricken countries. This poverty is illustrated by the recent World bank report (2005), which says that more than 70% of Nigerians are living below poverty line.  

It is against this background that this study is being undertaken. Poverty can be tackled using both fiscal and monetary policies to help solve this problem and growing poverty, removing the country from poverty trap that seems almost impossible to be solved.

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