EFFECT OF MONETARY POLICY

TOPIC:

EFFECT OF MONETARY POLICY ON THE PERFORMANCES OF COMMERCIAL BANK IN NIGERIA (1989 – 2008)

 

CHAPTER ONE

1.1     BACKGROUND OF THE STUDY

Monetary policy remain a critical tool in stimulating the growth and stability of financial Institution in most developing Economics. In Nigeria, the objectives usually include promoting monetary stability, strengthening the external sector performance and on generating a sound financial system that will support increased output  and employment. The central Bank of Nigeria (CBN) over the years has been rolling out pregnatic Monetary policies at ensuring policy stability a medium term, two years Termed policy trusted came on stream in 2002 (Central Bank Billion 2003).

Generally, the Kind of monetary policy entails the use of discretionary measures by the central Bank of Nigeria (CBN) to equate money, Supply (broadly decried) to the demand for it at a level comparable with the expected tempo of Economic activities in a given period. Nevertheless, monetary  policies are construct to be auction by the monetary authorities to influence the national economic objective by controlling of money supply credit and cost of credit. It is aimed at ensuring adequate supply of money to support financial accomplishment for growth and development on the  one hand, and stabilizing various sector of the economy for sustainable growth and development on the other hand monetary policies are therefore defined by Johnson (1962) as policies employing the Central Banks control of the money supply as an instrument for achieving the objectives of economic policy. Similarly from a synthesis of most of the literature and in the context of the Nigeria situation, Ubogu (1989) defined monetary policies as an attempt by the monetary authorities to emphasizes the level of aggregate economic policies as attempt by it to influences the level of aggregate economic activities by controlling the quantity and direction of money, and Credit availability. According to Akatu. (1993) Monetary policy in the Nigeria Central Bank of Nigeria (CBN) which affect the availability and cost of Commercial and Merchant Banks reserve balances and thereby affecting the overall credit and monetary condition in the Economy.

However, like many issues in economic, there is consensus among the economists as regards the usefulness and effectiveness of monetary policy measures in resulting the activities of commercial banks. Some argues that govern interventions through these policies would lead to stable and sustained growth in the financial system (Keynes 1969).

Nevertheless, inspite of these confuting views and unresolved issues among the Economists, monetary policies have been and are still being extensively used to regulate the activities of a commercial Bank.