EFFECTIVENESS OF CREDIT GUIDELINES ASAN INSTRUMENT OF MONETARY POLICY IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1                        BACKGROUND OF THE STUDY

One important factor affecting the level of economic activities in any economy is change in supply.  These changed affects directly the rate of spending by the citizen of the country.  It is therefore, because of the economic importance of monetary that the monetary authorities has devoted time and resources towards money management with a view of reaping the benefits inherent therein.

The credit guideline, which is my topic of study, has formed the apex instrument used by monetary authorities in Nigeria to influence economic activities.  The guidelines are informed of central bank of Nigeria monetary policy circulars prescribing sectoral and aggregate increase and decreasing in credits by the commercial and merchant banks.

According to Anyanwu J.A. (1998) the credit guidelines can be used to regulate the pace and content of economic in an economy. This involves authorities interference with the volume and direction of credit by the commercial and merchant banks to those sectors of the economy.  This is why the government divided the economy into major sectors, the preferred or high priority sector and the less preferred or high priority sector and the less preferred or “others” sector.

The preferred sector comprises of agricultural industrial or manufacturing enterprises residential building construction, exports and essentials services sub-sectors.

The government has since the introduction of the credit guidelines in 1964, being urging banks to grant more credit facilities to this sector or order to boost the rate of economic development in the country.  The less preferred sector of the economy also comprises of general commerce, government and “others”.  Government also urges the banks to allocate less funds or exercise restraint in granting loans and advances to this sectors because of the affects it this sectors because of the affects it would have no the general price level.