EFFICIENCY OF MONETARY POLICY IN CONTROLLING INFLATION IN NIGERIA
This researcher work was embarked upon to study the efficiency of monetary policy in controlling inflation in Nigeria.
The need for this study was informed by the trend of inflationary growth over the years, the impact of inflation on the achievement of the four basic goals of monetary policy: economic growth, price stability, inflationary rate or favourable balance of payment.
May research work have been carried out on this issue previously but despite all good policies of government and its agencies, these goals have remained elusive over the years.
There is therefore the need for study on this sensitive issue, to research, articulate and review the current approach and review the current approach to monetary policy which its success hinges crucially on the extent to which the budgetary programme of the federal government can be harmonized with the goal of monetary policy.
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The monetary policy of a country deals with control of money stock(liquidity) and therefore interest rate; in order to influence such macroeconomics variables as inflation, employment, balance of payment,aggregate output in the desired direction. There is no standard and idealstructure of monetary policy target and instrument, the instrument variesfrom country to country, depending on the size and stage of development of the financial market.Over the years, the objective of monetary policy have remained theattainment of external balance. However emphasis ontechniques/instrument to achieve this objective have change over the years.There have been two major phases in the pursuit of monetary policynamely, before and after 1986. the first phase placed emphasis on the directmonetary control, while the second relies on market mechanisms.The monetary policy before 1986: the economic environment thatguided monetary policy before 1986 was characterize by the dominate of the oil sector, the expanding role
of the public sectors in the economy, and over dependence on the external sector. In order to maintain price stability and a healthy balance of payment position, monetary management depend on the use of direct monetary instrument such as credit ceiling, selective credit controls, administered interest and exchange rate, as well as the perception of cash reserve requirement and special deposits. The use of market based instrument
was not feasible at that point because of the underdeveloped nature of the financial market and the deliberate restraint of interest rate.