The impact of exchange rate policy on inflation in Nigeria: A study of the Central Bank of Nigeria (CBN) (2000–2020)
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Background of the study :
Exchange rate policy is a critical tool used by the Central Bank of Nigeria (CBN) to regulate the value of the national currency and, in turn, influence inflation levels. Over the period 2000–2020, Nigeria experienced varied exchange rate regimes that significantly impacted import prices, export competitiveness, and overall consumer price stability. The CBN’s interventions—ranging from managed float systems to periodic devaluations—have been aimed at stabilizing the economy; however, these policies have also contributed to episodes of price volatility (Oluwaseun, 2023). Economic literature indicates that when exchange rate policies are applied consistently, they help moderate inflation by controlling imported inflationary pressures. Conversely, abrupt policy shifts or misaligned strategies can lead to inflation spikes and undermine market confidence (Adeyemi, 2024). This study employs a mixed-methods approach by integrating quantitative data on exchange rate movements with qualitative analyses from policy reviews and expert interviews. In doing so, it critically examines the transmission mechanisms through which exchange rate policies affect domestic price levels. By focusing on two decades of policy evolution, the research seeks to provide a nuanced understanding of how monetary policy decisions interact with external shocks and global market trends to influence inflation dynamics (Chukwu, 2025). Ultimately, the study aims to offer actionable recommendations for optimizing exchange rate policy to foster macroeconomic stability and sustainable growth.
Statement of the problem
Despite the CBN’s efforts to stabilize the economy through exchange rate adjustments, Nigeria has continued to experience persistent inflation. Fluctuations in the exchange rate policy have often coincided with sudden increases in consumer prices, creating uncertainty for businesses and households alike. The inconsistent application of these policies, coupled with external shocks such as global oil price changes, has further exacerbated inflationary pressures. There is a notable gap in empirical studies that comprehensively link the specific elements of exchange rate policy to inflation trends over the long term. This research seeks to investigate how past policy measures have contributed to inflation and to identify areas where policy implementation may be improved. Addressing these issues is critical for designing monetary strategies that can more effectively stabilize prices and support sustainable economic development (Oluwaseun, 2023).
Objectives of the study:
- To analyze the relationship between exchange rate adjustments and inflation trends in Nigeria.
- To assess the effectiveness of the CBN’s policy instruments over the study period.
- To recommend policy improvements for better inflation control.
Research questions:
- How do exchange rate policy adjustments correlate with inflation levels in Nigeria?
- What are the strengths and weaknesses of the current exchange rate regime?
- How can the CBN enhance its policy framework to better mitigate inflation?
Research Hypotheses:
- H₁: There is a significant relationship between exchange rate fluctuations and inflation in Nigeria.
- H₂: Inconsistent policy implementation has exacerbated inflationary pressures.
- H₃: Improved policy coordination can lead to better inflation control.
Significance of the study
This study is significant because it provides an in-depth analysis of the impact of exchange rate policy on inflation in Nigeria. The findings will assist policymakers in refining monetary strategies and improving policy consistency. By elucidating the direct link between exchange rate management and price stability, the research offers practical recommendations to enhance economic planning and promote sustainable growth. The study also contributes to the academic discourse on monetary policy effectiveness in emerging economies (Adeyemi, 2024).
Scope and limitations of the study:
This study is limited to the impact of exchange rate policy on inflation in Nigeria as administered by the CBN, without extending to other monetary variables.
Definitions of terms:
- Exchange Rate Policy: Governmental measures aimed at controlling the value of the national currency.
- Inflation: The rate at which the general level of prices for goods and services is rising.
- Central Bank of Nigeria (CBN): The regulatory authority responsible for monetary policy in Nigeria.
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