The effect of monetary policy on inflation in Nigeria: An evaluation of Central Bank of Nigeria strategies
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Background of the study :
Monetary policy is instrumental in regulating economic stability, particularly in controlling inflationary pressures. In Nigeria, the Central Bank’s strategic interventions, including interest rate adjustments, open market operations, and reserve requirements, are critical in managing inflation and fostering economic stability (Johnson, 2023). Over the past decades, Nigeria has experienced periods of high inflation, often linked to global oil price fluctuations and domestic economic challenges. The Central Bank of Nigeria (CBN) has employed various monetary tools to stabilize prices and ensure liquidity in the market (Okeke, 2024). Recent scholarly discourse suggests that while these policies have mitigated inflation to some extent, unintended consequences such as credit constraints and reduced investment have also emerged (Williams, 2025). The dynamic interaction between monetary policy and inflation necessitates a rigorous empirical analysis to understand the efficiency and impact of these strategies. This study delves into the effectiveness of the CBN’s monetary policies, evaluating their role in curbing inflation and promoting a stable economic environment. The analysis further considers the contextual challenges unique to Nigeria’s financial system, emphasizing the need for adaptive and forward-looking monetary strategies (Johnson, 2023; Okeke, 2024). Such insights are critical for developing robust policy frameworks that balance inflation control with sustainable economic growth.
Statement of the problem
Despite the proactive measures adopted by the Central Bank of Nigeria, inflation remains a persistent challenge in the Nigerian economy. Rising prices continue to erode consumer purchasing power and destabilize economic planning (Williams, 2025). The effectiveness of current monetary policies is questioned amid recurring inflationary cycles, suggesting gaps in policy design and implementation. Additionally, the adverse impacts on lending rates and investment climates call for a re-examination of monetary strategies. This study seeks to uncover the specific challenges inherent in the CBN’s policy measures and evaluate their success in controlling inflation. Addressing these issues is crucial for achieving a balanced economic environment that supports both growth and price stability (Johnson, 2023).
Objectives of the study:
- To evaluate the impact of monetary policy tools on inflation control in Nigeria.
- To assess the effectiveness of the Central Bank of Nigeria’s strategies in a dynamic economic environment.
- To identify areas for improvement in monetary policy implementation.
Research questions:
- How effective are current monetary policy tools in controlling inflation?
- What challenges hinder the optimal performance of the CBN’s strategies?
- How can monetary policies be refined to better manage inflationary trends?
Research Hypotheses:
- Monetary policy tools significantly reduce inflationary pressures.
- Implementation challenges undermine the effectiveness of CBN strategies.
- Improved monetary policy frameworks lead to lower inflation rates.
Significance of the study
This study provides critical insights into the efficacy of monetary policy measures in Nigeria. By evaluating the strategies employed by the Central Bank of Nigeria, it highlights the relationship between policy actions and inflation control. The findings can guide policymakers in enhancing monetary frameworks and addressing implementation challenges. This research also contributes to academic debates on macroeconomic stability and offers recommendations for future policy refinements, thereby supporting sustainable economic development (Johnson, 2023).
Scope and limitations of the study:
This study is limited to the effect of monetary policy on inflation in Nigeria only.
Definitions of terms:
- Monetary Policy: Central bank actions aimed at controlling money supply and interest rates.
- Inflation: The rate at which the general level of prices for goods and services rises.
- Central Bank of Nigeria: The institution responsible for regulating the Nigerian financial system.
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