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Project Topic:

THE CONTROL OF INFLATION USING CENTRAL BANK OF NIGERIA (CBN) MONETARY POLICY

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 Format: MS WORD ::   Chapters: 1-5 ::   Pages: 45 ::   Attributes: Questionnaire, Data Analysis,Abstract  ::   584 people found this useful

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ECONOMICS UNDERGRADUATE PROJECT TOPICS, RESEARCH WORKS AND MATERIALS

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CHAPTER ONE

1.1  INTRODUCTION

After an appreciated economic performance in the early 1970s, the Nigerian economy experienced serious economic problems from late 1970s to mid 1980s the country’s balance of payment came under severe pressure and was in persistent deficit during the period. The government’s current expenditure expanded without an appreciable increase in revenue, leading to widening fiscal deficits, which were largely financial with bank credit with adverse consequences on the general price level. The inflationary pressure further appreciated by high demand of imports and both intermediate inputs and consumer goods due to over valuation of the naira, which made imports relatively larger than locally manufactured good, (Ahmed, 1992).

1.0  BACKGROUND OF THE STUDY

In addressing the crisis, a number of policy measures regularly demand government embarked upon management. In April 1982, the federal government enacted the economic stabilization measured, which dealt extensively on import restriction as well as monetary and fiscal policies. The effectiveness of this measures were constrained by the continued decline in foreign exchange earnings, the over valuation of naira and other distortions and liquidities in the economy, (Ahmed, 1992).

As the demand pressure movement at the inter-foreign exchange market (IFEM), the exchange rate of the naira came under renewed pressured in spite of CBN’s determination to fund the growing demand for foreign exchange. The naira cost 1% of its face value in February 2002 dropping from N11396 to N114, 75 per dollar at the official market in the parallel market, it cost 2.3% of its value as depreciates from N135.52 to N138.68 per dollar. This was an indication that inflation rat is on the increase (Yansi, 2002).

This study is being carried out to know the different CBN credit instruments and their effectiveness in inflationary control.

1.3  STATEMENT OF THE PROBLEM

This research project is designed to investigate inflation control through the use of monetary policy. There have been various efforts by the government to combat inflation in the country. But in spite of all these efforts being made, inflation is said to be alarming in the country. Nigerian industries as well as individuals are groaning under the crusting effect of inflation. What the causes of the phenomenon, what measures are taken so far to combat the situation, are credit instrument of CBN effective or ineffective in controlling inflation? (Ozo, et al 1999).

 1.4 OBJECTIVES OF THE STUDY

1.    To find out whether currency devaluation is a cause of inflation.

2.    To find out the extent to which inflation has effected the economy.

3.    To determine the effectiveness of open market operations as a tool for inflation control.

4.    To identify the adverse effect of inflation on economic growth.

5.    To recommend measures for effective control of inflation through monetary measures.

1.5  RESEARCH QUESTION

1.    Is currency devaluation a cause of inflation?

2.    To what extent has inflation affected the economy?

3.    What is the effectiveness of open market operation as a tool for inflation control?

1.6  SIGNIFICANCE OF THE STUDY

The study is very timely, today that inflation trends is at an alarming rate in Nigerian economy. This study will be of immense benefit to the government and experts and students to determine the extent of the effect now of CBN monetary policy as a tool of inflation control. In addition, the study will determine the facts or problem limiting the effectiveness of these instruments. It is expected that the findings will help to bridge any gap that may exist and to make this instruments effective in inflation control (Ozo et al 1999).

The government achieved its objectives in economic growth and stability through inflation control we will help the government to know whether to pump money into the economy or not.

1.7  LIMITATION OF THE STUDY

These studies cover the forms, rates, effects and control of inflation, which is limited to the application of the CBN monetary policy. It covers inflation control in Nigeria only.

The research is carried out with available literature review material. There are inadequate materials, time and space for the collection of data.

1.8  DEFINITION OF TERMS

i.     INFLATION

This is defined as a significant and sustained increase in the general price level (Nwabah, 1995). It is also an increase in the volume of money and credit relative to available goods and services resulting in a sustained and continuing rise in the general price level, (Orjih, 1996).

ii.    MONETARY/CREDIT POLICY

This can be defined as any consigns action undertaken by the monetary authorities to change the volume, quantity, availability, cost and direction of money and credit in an economy. it can also be defined as the credit control measures adopted by control bodies to control the supply of general economic policy, (Orjih, 1996).

iii.    CREDIT INSTRUMENT

These are instrument of monetary policy, they include open market operations, legal reserve ratio, bank rate, liquidity ratio, moral suation, directives, etc (Orjih, 1996).

iv.    CENTRAL BANK OF NIGERIA

This may be defined as an apex financial institution, which is charged with the responsibility of managing the cost volume, availability and direction of money and credit in Nigerian economy with a view to achieving some desired economic objective (Orjih, 1996).

v.    CONTROL

This is to check, deduct, remedy or combat (Hornby, 1974).

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