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PERFORMANCE APPRAISAL OF MONETARY POLICIES OF CENTRAL BANK OF NIGERIA (2010-2019)


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Abstract

The study examines the performance appraisal of monetary policies of central bank of Nigeria from 2010-2019. Which has been an issue that has gained momentum among scholars of repute. Different relevant empirical reviews were carried out. The study specifically addressed the effect of monetary policies of central bank of Nigeria. Monetary policy in the second half of 2017 was shaped by a number of developments in the global and domestic economic and financial environments. On the global front, the key issues were: the continued slow pace of recovery in global oil and other commodity prices, the damage to infrastructure caused by hurricanes – Harvey, Irma and Maria, the reduction in China’s uptake of global commodities and financial market uncertainties due to monetary policy normalization in the US. In view of this the study the major conclusion drawn is that monetary policy instruments are not effective to stimulate commercial bank loans and advances in the long-run, while banks’ total credit is more responsive to cash reserve ratio. Thus, monetary authority should make efforts to develop indirect monetary instruments and exercise appropriate control over the monetary sector

 

CHAPTER ONE

                                        INTRODUCTION

  • Background of the study

Monetary policy is one of the macroeconomic instruments with which nations (including Nigeria) do manage their economies (Ajie and Nenbe, 2010). According to Ubi, Lionel and Eyo (2012), monetary policy is an aspect of macroeconomics which deals with the use of monetary instruments designed to regulate the value, supply and cost of money in an economy, in line with the expected level of economic activity. It covers gamut of measures or combination of packages intended to influence or regulate the volume, prices as well as direction of money in the economy per unit of time. During the first half of 2019, monetary policy was influenced by key developments in the global and domestic economic and financial environments. On the global front, the key challenges were: vulnerabilities in major financial markets and mounting external debt in Emerging Market and Developing Economies (EMDEs); slowdown in the Chinese economy resulting from trade war with the US; tightening global financial conditions; US imposition of a new round of sanctions on Iran; uncertain BREXIT negotiations, and indications of renewed tension on the Korean Peninsula (Ajie and Nenbe, 2010). In addition, uncertainty surrounding the continuing monetary policy normalization by the US, the European Central Bank’s (ECB) decision to halt its monetary policy normalization programme, and continued asset purchase by the Bank of Japan (BoJ), signalled a broad level of uncertainty in the global economy. Despite these challenges, oil prices remained relatively stable resulting in modest accretion to Nigeria’s external reserves. This helped the Bank sustain its intervention in the foreign exchange market which resulted in stable exchange rate.

Consequently, headline inflation decelerated from 11.37 per cent in January to 11.22 per cent in June 2019. The recovery of the domestic economy from recession in 2017, weakened further due to the lull in governance activities leading to the 2019 general elections, delay in the constitution of the federal cabinet after the elections, as well as the late passage of the 2019 Federal Government budget. (Abata et al., 2012)

Other factors were: the heightened security challenge across the country, and the continued difficulties in securing market outlets for Nigerian oil. Notwithstanding, output growth remained positive due to improved government revenue and expenditure on implementing the Economic Recovery and Growth Plan (ERGP). In addition, the development finance initiatives of the Central Bank of Nigeria (CBN) also supported growth during the period. Accordingly, growth in real Gross Domestic Product (GDP) stood at 2.10 per cent (year-on-year) in the first quarter of 2019, compared with 2.38 and 1.89 per cent in the preceding and corresponding quarters of 2018, respectively (Ajie and Nenbe, 2010).

The non-oil sector continued to drive growth, as it grew by 2.47 per cent compared with 0.76 per cent in the corresponding quarter, a 1.72 percentage point increase. Compared with the 2.70 per cent growth in the preceding quarter of 2018, it moderated by 0.23 percentage point. On the other hand, the oil sector contracted by 1.46 per cent in the first quarter of 2019 compared with the growth of 14.02 per cent in the corresponding period of 2018 and a contraction of 1.62 per cent in the preceding quarter. In the second quarter of 2019, growth in real GDP further moderated to 1.94 per cent compared with 2.10 per cent in the preceding quarter. This was, however, higher than the growth of 1.50 per cent in the corresponding period of 2018. At 5.15 per cent, the oil sector was the major driver of growth during the second quarter; indicating significant recoveries from the contractions of 1.46 and 3.95 per cent in the preceding quarter and the corresponding period of 2018, respectively. The non-oil sector growth moderated to 1.64 per cent during the quarter, compared with 2.47 and 2.05 per cent in the preceding quarter and the corresponding period of 2018, respectively.

  • STATEMENT OF THE PROBLEM

Many years ago, the Nigerian economy has been faced with inflationary pressure which has retarded her growth process. Gbadebo and Muhammed (2015) stated that this could be traced to 1970s when inflation increased to a double digit. The trends of inflation in the economy indicated that inflation rate rose in 1990s from 63.6% to 72.8%. However, the economy experienced stability in 2003 through economic reforms programs which was later followed by inflationary pressure with rises in inflation rate at 12.9%, and 14% in 2000 and 2001 respectively. Headline inflation rate remained at double digits between 2002 and 2005 as it recorded of 15%, and 17.9% respectively. However, it decreased dramatically to 8.24% and 5.38% in 2006 and 2007 before increasing immensely to 11.60% and 12.00% in 2008 and 2009 respectively in that order, although dropped slightly to 11.8% and 12.3% in 2010 and 2013 respectively (Gbadebo & Muhammed, 2015). There is drop in the rate to 8.1% in 2014 but rises to 9.1% in 2015 with a sharp rise in 2016 to 15.7%. The problem of inflation has always been a problem as a result of its effect on economic activities. Rise in general price of goods and services which leads to the drop in the value of money, this leads to fall in unit a currency can buy. Inflation can as well result to rise in the cost of production, excess demand over supply. Inflation has been an economic problem in Nigeria due to continuous spike in prices of goods and services in the country which results to panic and uncertainty in the economy resulting to citizens not willing to spend too much for a little in return or invest so as to not make losses when prices fall. Inflation decreases the standard of living of the citizens in an economy. This has imposed the need for this study due to the unceasing increase in the prices of goods and services in the nation due to the outbreak of COVID-19 (Coronavirus). This has necessitate the need for the study

  • OBJECTIVE OF THE STUDY

The study has one main objective which is sub-divided into general and specific objective. The general objective is to examine the relevance appraisal of monetary policies of central bank of Nigeria 2010-2019. The specific objectives are;

  1. To examine the effect of monetary policies on Nigeria inflation rate
  2. To ascertain the relationship between monetary policies of central bank of Nigeria and economic growth
  • To examine the relationship between inflation rate and price of goods and services in Nigeria
  1. To proffer suggested solution to the identified problem
    • RESEARCH QUESTIONS

The following research questions were formulated by the researcher to aid the completion of the study;

  1. Does monetary policies have any effect on Nigeria inflation growth rate?
  2. Is there any significant relationship between monetary policies of central bank of Nigeria and economic growth?
  • Is there any significant the relationship between inflation rate and price of goods and services in Nigeria?
    • RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study;

H0: There is no significant relationship between monetary policies of central bank of Nigeria and economic growth

H1: There is a significant relationship between monetary policies of central bank of Nigeria and economic growth

H0: There is no significant relationship between monetary policies of central bank of Nigeria and economic growth

H2: There is a significant relationship between monetary policies of central bank of Nigeria and economic growth

  • SIGNIFICANCE OF THE STUDY

It is believe that at the completion of the study, the findings will be of great importance to the management of the central bank of Nigeria, as the findings of this study will aid in policy formulation and to enhanced effective and efficient monetary policy in Nigeria, the study will also be of importance to researcher who intend to embark on a study in a similar topic as the findings of this study will serve as a reference point to further research. The study will also be of importance to researchers, academia’s, students teachers and the general public as the findings of the study will contribute to the pool of existing literature and also contribute to knowledge on the subject matter.

  • SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the performance appraisal of monetary policy of central bank of Nigeria 2010-2019. But in the course of the study, there are some factors that limit the scope of the study;

  1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
  2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
  3. c) Organizational privacy: Limited Access to the management and staff of Central bank of Nigeria makes it difficult to get all the necessary and required information concerning the activities.

1.8 OPERATIONAL DEFINITION OF TERMS

Performance

The action or process of performing a task or function. The continual performance of a single task reduces a man to the level of a machine

Monetary policy

Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing or the money supply, often as an attempt to reduce

Central bank of Nigeria

The Central Bank of Nigeria is the central bank and apex monetary authority of Nigeria established by the CBN Act of 1958 and commenced operations on July 1, 1959. The CBN Act was amended in 1991, 1993, 1997, 1998, 1999 and 2007

 

 

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