THE EFFICACY OF MONETARY POLICY AS AN INSTRUMENT FOR CONTROLLING INFLATION ON NIGERIA ECONOMY
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ABSTRACT
The Nigerian economy is aiming to have the sustainable growth path. Through the International Monetary Fund (IMF) the government can adopt the comprehensive Structural Adjustment Program (SAP). Nigeria has a structural and sectoral macroeconomic policy reform and the main strategies were (a) the liberalization of the external trade and payment systems, (b) the adoption of a market-based exchange rate for the domestic currency ─ Naira, (c) the elimination of price and interest rate controls, and (d) the reliance on market forces as the major determinants of economic activity (Owoye & Onafowora, 2007).The market reform in the financial sector such as the banking system can use the monetary control and instruments for implementing monetary policy in Nigeria. In any countries across the globe, the fiscal and monetary policies seek at achieving relative macroeconomic stability. The monetary policy framework in Nigeria is more than the objective of monetary policy is price and exchange rate stability. The monetary strategy in the inflation management is based on the view that inflation is essentially a monetary phenomenon. The Nigerian economy targets the money supply and its growth can be the main objective of the price stability. In order to promote the appropriate methods in monetary policy, the supply growth is firstly considered in targeting the inflation. The study examined the efficancy of monetary policy in controlling inflation in Nigeria. In the model specified, inflation is the regress and while cash reserved requirement, liquidity ratio, money supply, minimum rediscount rate and interest rate are the regressor. Data was collected from CBN statistical Bulletin for the period 1970 – 2009. The statistical techniques used for the analysis is the ordinary least square technical with the aid of E-view 5.0 software package. The research indicates that monetary policy adopted in Nigeria within the period under review failed to influence the inflation rate. It has been identified that the major problem militating against the poor performance of monetary policy instrument in controlling inflation in Nigeria is time lags involved which makes any policy employed to take many months to achieve its full effect.
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