INFLATION CONTROL THROUGH THE USE OF CENTRAL BANK OF NIGERIA INSTRUMENT OF CREDIT CONTROL
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INFLATION CONTROL THROUGH THE USE OF CENTRAL BANK OF NIGERIA INSTRUMENT OF CREDIT CONTROL
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Inflation has been a problem for many countries around the world, particularly emerging countries. It began in the early 1960s, leading to the implementation of economic policies as a means of mitigating the effects of inflation in the economy.
And the majority of the measures used by emerging countries to combat inflation are in the form of central bank credit control devices. This is intended to reduce the amount of money in circulation while maintaining a low cost of living.
Nigeria, like other emerging countries, is dealing with inflation. In Nigeria, policymakers have struggled with inflation since the 1990s. And the pace of inflation has been increasing since then.
Various viewpoints from different economists on what inflation is are as follows:
1. In which too much money is chasing two or three products
2. There is a decrease in the purchasing power of money.
3. When the quantity of money in circulation increases.
4. Where there is a wage clearing surplus over productivity growth.
For the purposes of this study, Ben Chukwuemeka Anibueze Banking Practise volume three defines inflation as a continuous rise in the overall level of prices of most products and services, implying that there is always an increase in price without inflation.
In Nigeria, the reasons of inflation can be linked to four primary factors: money supply, the type of government expenditure and policy, actual production constraints, and the heavy influence of imported inflation.
Wage and salary increases, particularly if there is no increase in productivity, would affect the supply of money, as would an increase in petroleum pump prices, which the federal government has undertaken.
Furthermore, government spending can either cause or raise the rate of inflation.
This is because the government has increased its consumption expenditure on the economy.
The Nigerian Central Bank has attempted to regulate the liquidity position of the Nigerian economy through its credit criteria, some of which are as follows:
(a) Management of the pace of growth of commercial and merchant banks’ aggregate loans and advances.
(b) Assist banks in channelling credit to various areas of the economy.
Regulate the banks in order to ensure that they are prudent in their loan and advance granting.
This guideline aids in the regulation of money circulation expansion.
As a result, the economy’s inflation will be reduced.
1.2 STATEMENT OF THE PROBLEM
The central bank of Nigeria, as the top bank, is tasked with developing and implementing monetary policy in Nigeria.
The development of monetary policy has numerous purposes, which vary depending on time and place. They are known in Nigeria as
(a) Maintaining confidence in the Nigerian currency through domestic wage and price stability initiatives.
(a) Assistance in increasing agricultural and industrial output.
(b) Efficient procedures for complementing current government spending and providing development funds.
The Bank of Nigeria was founded by a statute in 1985 and given the authority to utilise certain monetary control instruments. Cash and liquidity ratios are regulated using these credit control instruments.
The Nigerian Central Bank can also decrease liquidity by requiring the government and its agencies to take all deposits from merchant and commercial banks and deposit some with the central bank. This will help to keep the economy’s inflation rate under control.
1.3 OBJECTIVE OF THE STUDY
The goal of this work is to investigate the barriers to effective measures being implemented to reduce the rate of inflation in Nigeria.
It will also assess the efficacy of the central bank of Nigeria’s employment of various credit control instruments to keep the economy’s volume under control.
The work will also determine why the inflation rate appears uncontrollable, undermining all actions adopted to limit it to a specific level. This study aims to identify these issues and make recommendations on how to address them in order to manage inflation in the country.
1.4 SIGNIFICANCE OF THE STUDY
This research will aid policymakers and investors. It will also act as a guide for monetary authorities on how to control inflation in the country through the employment of credit control mechanisms.
After identifying the issues, it would also assist the federal government and the Central Bank of Nigeria in allocating resources to various sectors of the economy by monitoring spending.
Banks would benefit from the study as well in tackling their credit creation problem, which is a constraint to most banks’ profit-making powers.
1.5. DEFINITION OF TERM
Certain terminology must be understood in order to fully comprehend this work. These are some examples:
(a) CREDIT: Credit is money that banks lend to consumers in the form of loans and overdrafts.
(a) LOAN: This is when a bank borrows or lends money to a consumer, which is then repaid over time with interest.
OVERDRAFT: A circumstance in which a customer with a current account is permitted to withdraw more money than he has in his account.
(d) INFLATION: This is a condition in which the general level of price of goods and services continues to rise.
MONETARY AUTHORITY: This is the entity that is in charge of controlling the supply of money. This is the fault of the Nigerian Central Bank (CBN) and the Federal Government.
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