PROJECT ON THE IMPACT OF MONETARY POLICY ON BANK CREDIT IN NIGERIA

  • : Ms Word, Ms Word Format
  • : 70 Pages
  • : ₦3000
  • : 1-5 Chapters
  •  
  • Click to DOWNLOAD Materials

PROJECT ON THE IMPACT OF MONETARY POLICY ON BANK CREDIT IN NIGERIA

CHAPTER ONE

                                         INTRODUCTION

  • Background of the Study

This study is aimed at understanding the economic importance of monetary policy and its effects on bank credit in the economy between the years 1981 and 2019. Monetary Policy is a measure designed by the Government or Central Bank to control the cost, availability and supply of credit. The goals of monetary policy are basically to control inflation, maintain a favourable balance of payment position in order to safeguard the external value of national currency and promote adequate and sustainable level of economic growth and development. These goals are being achieved by controlling money supply in order to enhance price stability (low and stable inflation) and economic growth. This action is implemented through the apex bank by varying money supply or interest rates with the aim of regulating as well as controlling the quantity of money in the economy. Money play an important role in any economy and this has made policy makers and other relevant stakeholders to accord special attention to the conduct of monetary policy.

There are basically two types of monetary policy, which are expansionary and contractionary. An expansionary monetary policy is used whenever monetary authorities decides to increase the supply of money or reduce the cost of money in the  economy  so  as  to  stimulate  an  increase  in  economic  activities  and  also  to overcome depression, recession and deflationary gap. A monetary policy is said to be contractionary or  tight  when  the monetary  authorities  embark  on policies  that  will  reduce  the volume of money supply or increase the cost of money in economy, in order to generate a contraction in economic activities. The impact of contractionary policies is to reduce the general price level and curb inflation which will equally lead to a reduction in the level of investment, employment, output and economic growth

The primary instrument of monetary policy under the market-based approach to monetary management in Nigeria is Open Market Operations (OMO), but there are other instruments such as: reserve requirements, discount window operations, foreign exchange market intervention, and movement of public sector deposits in and out of the domestic money banks (DMBs).

Monetary policy has two major regimes in Nigeria which are the period before the introduction of Structural Adjustment Programme (SAP) in 1986, and the period since the introduction of Structural Adjustment Programme SAP. In the first period, the CBN’s monetary policy framework placed emphasis on direct monetary policy control, while in the second period it relied, and is still relying, on indirect approach anchored on the use of market instruments in monetary management.

Formulating and implementing monetary policy in Nigeria has a framework which has overtime, witnessed tremendous transformation in line with the evolving financial environment overtime. The major developments include the change from direct control to market-based approach to monetary management, and the change from short-term to medium-term framework in the conduct of monetary policy.
The monetary transmission mechanism describes how policy induced changes in the nominal money stock or the short-term nominal interest rates impact real variables such as aggregate output and employment (Ireland, 2005).

The objective of stimulating bank credit to the real sector by the monetary authority is to achieve sectoral growth. The real sector is recognized by the monetary policy of the economy. The importance cannot be over emphasized in the economic growth of the country.

 

  • Statement of the Problem

Since the establishment of the Central Bank of Nigeria (CBN) in 1958, it has been saddled with responsibility of ensuring vibrancy and efficiency in monetary policies expected to positively affect the real sector as well as improve the financial system of the country, Nigeria. This objective has driven the Central Bank to reform monetary policy since its establishment, with various monetary policies implemented in Nigeria.

Onotor (2007) observed that one of the most complex issues facing government is identifying the appropriate level and form of intervention in the banking sector. Its efficiency as a regulator is a significant determinant of the overall efficiency of the economy. The extent of regulatory intervention may also determine whether financial markets can develop to their full potential or not. Ultimately, any inefficiency must be funded by higher charges passed on to the community as cost arising from stringent regulation. The more sophisticated the monetary policy, the greater its vulnerability to failure of banks to deliver against its promises. When these failures occur, investment which is an important factor in economic growth is kept low. Consequent upon this, trust and confidence in the financial system may go down and sourcing of funds from banks may face a downward trend due to increase in cost of loan. The increase in cost of capital often deters prospective investors from engaging in new ventures as well as discourages customers of companies from optimal patronage of their products. It therefore, stands to reason that increase in cost of capital results in cyclical effects in the economy. In view of this, any review of monetary policy is often greeted with wide spread apprehension, that cuts across various sectors of the economy. On the other hand, a decrease in the cost of capital tends to stimulate more aggressive investment in any economy. The higher the volume of investment, the greater the competition. Even though consumers of products from various companies stand to benefit from this situation in the short run, it may portend serious danger in the economy if it is allowed to stretch to the extreme. As companies engage in stiff competition, weak ones (especially those that are disadvantaged technologically) may be driven out of business. This may result in monopolies with their obvious consequences in the economy.

 

  • Research Questions

This study will answer the following research questions:

  1. What is the impact of monetary policy on bank credit in Nigeria?
  2. What is the causal relationship between monetary policy and bank credit in Nigeria?

 

  • Objectives of the Study

The main objective of the study is to assess the impact of monetary policy on bank credit in Nigeria. To achieve that, the following specific objectives will be pursue:

  • Examine the impact of monetary policy on Bank Credit in Nigeria
  • To determine the causal relationship between monetary policy and Bank Credit in Nigeria.

 

1.5 Statement of Hypothesis

H0: Monetary policy has no impact on bank credit in Nigeria.

H0: Monetary policy has no causal relationship with bank credit in Nigeria.

 

1.6 Significance of the Study

Inequality has been a major concern to the people of the world for quite some time. While some few people are enjoying the affluence of life at one part of the globe, the majority of human race are wallowing in abject poverty at the other end. How to emancipate the majority of humans from this suffering has prompted this research work.

Monetary policies influencing Bank Credit has been seen as one of the ways out. This research work as such is significant to ensure equitable and adequate distribution of wealth.

The conclusion drawn from this study shall be a useful stepping stone to other researchers who want to make further study on the topic. It equally provides vital information to policy makers. It will hopefully come up with some salient lessons for policy practitioners, researchers and students.

 

  • Scope of the Study

The study examines the impact of monetary policy on bank credit in Nigeria covering the period of 1981 to 2019. The variables used in the study are bank credit, monetary policy rate, money supply, liquidity ratio and Treasury bill.

 

  • Definition of Terms
  1. Monetary policy rate: Monetary policy rate is the rate at which banks can borrow from the central bank. The CBN also influences the rate at which bank can lend to businesses or customers.
  2. Bank credit: Bank credit is the amount of money that is available for lending from the Central Bank to Commercial Banks and Government institutions, and from Banks to Individuals and Businesses.
  3. Money supply: Money supply refers to the total amount of money which is available in circulation at a particular point in time in an economy.

 

 

  • Organization of the Study

This study consists of five chapters.

The first chapter entails the background of the study, statement of problem, research question, Objective of the study, statement of hypothesis, significance of the study, scope of the study, definition of terms and organization of the study. Chapter two is the review of literatures which entails brief introduction, Introduction, Conceptual Framework, Monetary policy rate fluctuations and Bank credit, Background of monetary policy rate in Nigeria, Theories of monetary policy rate, Theoretical framework, The review of empirical literature, Summary.

Chapter three will focus on research methodology. Chapter four will focus on analysis, presentation and interpretation of results. Finally, chapter five will entail summary, conclusion, and recommendations.

PROJECT

Sharing is caring!

Leave a Reply