Occasionally, the nation is faced with economic instability, this
could be as a result of less or too much money in circulation, therefore the
researcher intends to write on laws these problem could be solved through the
implementation of monetary and fiscal policy tools.
In addition, the essence of the research work is to review and as
well as identify the various means of expanding and controlling the volume of
money in circulation in period of deflation and inflation respectively.
Furthermore the research intends to source her data through
secondary source as recommended; this entails the review of related textbooks,
journals and other publications.
Since this research work is restricted to the secondary source of
data, the researcher intends top locate her data from following places. IMT
library, ESUT library, National library and CBN library.
Conclusively it is believed that at the end of this research work,
the data/information contained in this work will contribute positively to
measure of regulating the Nigerian economy through the implementation of the
monetary and fiscal policy tools.
1.1 Background of the study
1.2 Statement of the problem
1.3 Purpose/objective of the study
1.4 Significance of the study
1.5 Limitations of the study
2.1 Review of related literature
3.1 Research, design and methodology
3.2. Sources of data (secondary source only)
3.3. Location of data
3.4 Method of data collection (literature work only)
4.1 Summary of finding
5.1 Recommendation and
BACKGROUND OF THE STUDY
Central bank of Nigeria (CBN) started with effect from 2002 fiscal year, adopt
a medium term perspective monetary policy framework. Unlike earlier program
which where designed for one year, the new programmes is for a two year period
beginning January 2002 to December 2003. the shift is in recognition of the
fact that monetary policy actions affect the ultimate objectives of policy with
a substantial lag. Thus, the current shift will free monetary policy
implementation from the problem of time inconsistency and minimize over
reaction due to temporary shock..
This circular outlines the monetary, credit, foreign trade and exchange policy
guideline applicable to bank and others financial institution in Nigeria in
2002/2003. in particular, monetary and credit policy will be implemented within
the framework of the medium term programme. The guidelines will be subjected to
fine turning in the light of development in monetary and financial market
conditions, as well as the performance of the economy, which could be conveyed
to the relevant institutions in supplementary circulars as necessary. The
circular contains four major sections and four appendices following the in
production, which is section 1, section 2 review the development in the economy
and policy environment in 201 and thus 2002/2003. section 3 outlines the
monetary and credit policy financial institutions in fiscal 2002, while the
foreign trade and exchange policy measures are highlighted in section 4. the
appendices contain prudential guidelines for licensed banks and reporting
REVIEW OF MEACRFO ECONOMIC AND POLICY ENVIRONMENT IN 2001
economic developments major economic inclies indicated mixed macro economic
performance in 2001 the environment for the continued expansionary fiscal
operations of the three tiers of government, as a result of the
magnetization of the excess crude oil, receipt and proceeds from the GSM
license later in the year, as well as monetary financial of fiscal deficit.
This resulted in large injections of liquidity into the economy, which
undirected rapid monetary growth and intensified inflationary pressure interest
rates were influenced by the state of bank liquidity as well as policy actions
aimed at addressing the problems of liquidity over having. The average naira
exchange rate at the fiscal market however remained relatively stable for most
of the period, while relative implement was observed in agricultural and
industrial production. The outcome of external sector development remains
favorable up to the third quarter of the year. The fourth quarter, however
witnessed a slide in the report price of crude petroleum with negative
implications for export earning and government revenue.
Growth in real gross domestic product (GDP) was estimated at 3.8 percent during
the first half of 2001 compared with the 5.0 percent targeted in 2001. the
growth in output reflected the inv=crease in both agricultural and industrial
production. Aggregate manufacturing capacity utilization rose marginal by 0.3
percent point over its level in the first half of 2000 the preceding half year.
The upward pressure in inflation trend observed since July 2000 continued in
the fourth quarter of 2001, with the inflation rate at 18.9 percent in
November, compared with 5.8 percent in the corresponding period of 2002.the
provisional balance of payment for the first half of 2001 indicated on overall
surplus of #51.1 billion(us$458.9 million) compared with #78.3 billion (us
$782.5 million) in the corresponding period of 2000. this development reflected
the surplus in the current account, which more than offset the deficit in the
capital and the financial account the current account position was bayed mainly
by enhanced earning from crude oil exports, occasional by high prices of crude
earnings from crude oil in the international petroleum market. The value on non
oil exports however fell sharply from #14.8 billion in 2000 to #9.3
billion in June 2001. Gross external reserve increased from US $9.9 billion
(#1.032.5) at end of December 2000 to US$10.6 billion (#167.8 billion) in June
2001 and declined marginally to Us$10.4 billion (#1,152.2 billion) by November.
The Naira exchange rate via-a-vis the us dollar was relatively stable in the
IFEM for most of the year. After the depreciation in the first months, from
#110.5 to #113.59 = us$1.00, the average IFEM rate appreciate steadily from
#113.07 = us$1.00 in may to #111.60 = us$1.00 in September and remained at that
level in October 2001 the rate however depreciate marginally to #111.99 = us
$1.00 in November
Similarly, the average parallel market and bureau discharge rates depreciated from
#123.38 and 48 = us $100 respectively, in may before appreciating consistently.
The relative stability achieved was attributed destination import inspection at
The growth in monetary aggregates accelerated rapidly in the eleven months of
2001, exceeding the prescribed targeted for the year by wide margins.
Provisional data indicated that broad money (M2) rose by 26.8 as against the
programmed target of 12.2 percent of the year. The expansion in M2 reflected
growth in both the narrow money (m1) and questioned components. M11 expanded by
19.9 percent compared with the 4.3 percent growth stipulated for the whole
year. Monetary growth during the period was given by the increase in bank
credit to the domestic economy and foreign assets (net) of the banking system,
following the continued magnetization of excess crude oil export proceeds.
Aggregate bank credit to the domestic economy rose significantly by 77.8
percent as against the 15.8 percent growth target for fiscal 2001 the rise
reflected the growth in credit to both the government and the private sector.
Net claims on government and the private sector. Net claims in government rose
by 132.8 percent as against the target expansion rate 2.6 percent for the
entire year. Similarly credit to the private sector rose by 37.3 percent
compared with the target of 22.8 percent for the whole year. The growth in
credit to the private sector was, as in the previous year, largely drawn by
development in the foreign exchange market.
Reported bank lending rates were generally high during the year, while the
deposit rates remained low. By November 2001, the spread between the weighted
average deposit and maximum lending rates was 11.6 percentage points which that
between the average saving deposit and maximum lending rate was 26.1 points
most deposit rates remained negative in real terms as inflation rate
accelerated. During the year the CBN tightened its monetary policy to stem the
liquidity surge arising from the expansionary fiscal operate of governments.
The banks progressively raised its minimum rediscount rate (MRR) by 650 baize
points from 14000 percent in January to 20.5 percent in September, similarly
both the cash reserve requirement (CRR) and statutory minimum liquidity ratio
(LR) were revised upward from 10.0 and 35.0 percent to 18.5 and 40.0 percent,
respectively during the same period. The CBN also introduced its own
intervention instrument, the CBN certificate in February 2001, to complement
the traditional treasuring bill in addressing the problem of liquid overhang in
the banking system.
1.2 OUTSTANDING MACRO ECONOMIC PROBLEMS AND POLICY
CHALLENGES FOR FISCAL 2002/2003
The effect of fiscal federalism exacerbated the problem of excess
liquidity with adverse implications for domestic price, exchange and interest
rates, the persistence of structural bottlenecks in the economy also continued
to constrain economic recovery in 2001 while some macro economic indicators
showed marginal improvement in 2001 relative to 2000
OBJECTIVE OF THE STUDY
The primary of monetary policy in 2002/2003 is the achievement of price and
exchange rate stability specially, monetary policy shall seek to subdue
inflation to a single digit over the two year period consequently the central
focus will include effective control of anticipated liquidity injection that
may arise from excessive government spending during the pre-election year of
2002/2003 in order to minimize their negative effects on domestic price and
exchange rate. The effect stance of monetary policy will be non-accommodation
while a more competitive financial environment will be fostered to enhance
greater access to credit for the real sector. Furthermore, continued effort
will be made in improving the payment system in order to further strengthen the
effectiveness of monetary policy. The broad measure of money supply (m2) shall
continue to be the intermediate target of monetary policy. An average growth in
m2 of about 15.2 percent during the two year period which translates in 15.3
percent in 2002 and 15.0 percent in 2003 shall be maintain.
SIGNIFICANCE OF THE STUDY
The critical rate of the CBN in the management of the Nigerian economy has been
made obvious by the provisions of the law stability of the bank. The core
mandate of the CBN as spelt out in the CBN Act of 1958 include, insurance of
legal tender currency, banker and financial adviser to the federal government
to safeguard the international valve of the currency, promotion of monetary
stability of and a sound efficient financial system, although the original act
mandates the CBN to promote monetary stability, it was in the 1999 amendment to
the act that actually confirmed discretionary powers of governors, the board
and management of the bulk, in the information and implementation of monetary
policy, especially the determination of the appropriate interest rate regime
and exchange rate policy.
In keeping with the principle of transparently and accountability in the
conduct of monetary and financial policies. The CBN publishes its monetary
policy objectives targets and measures fro a two year period. The exercise
involves the review of developments in the economy during the preceding year,
the identification of the prospects and problems in the years ahead and the
outlining of the policy goals and performance target. For the period.
In spirit of transparency, the summary discussion and decisions of the MPC are
communicated to the general public in newspaper publications every month.
Moreover, in order to enhance effectiveness and stability of the financial
sector, the financial services regulation and coordinating committee (FSRCC)
meets the coordination of the various regulatory institutions in the sector.
The committee works towards minimizing arbitrage opportunities that are
usually created by differing regulatory and supervisory standards among the
various agencies, deliberates on problem experience by every member in its
relationship with any financial institution and bridges any information in its
relationship with any type of financial institution.
TERMS AND CONDITIONS APPLY
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