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1.1  Background of the Study

The role of the central bank in promoting national economic policy and development has in recent years become a topical international economic policy issue. Although the empirical evidence on the relationship between central bank operations and macroeconomic stability proxied by price stability is not conclusive (Folawewo and Osinubi, 2006), the prevailing wisdom supports the need to accord a central bank a reasonable degree of autonomy that will give it substantial discretion to conduct its monetary policy in a manner that will help achieve its assumed central mandate of maintaining domestic price stability, defined as a regime of relatively low inflation rate and an environment free of inflation expectations.
While monetary policy’s aim at long-run price stability is critical to fostering sustainable economic growth, central banks’ role in promoting growth and, more generally, a healthy economy goes beyond the conduct of monetary policy (Sanusi 2002). Through involvement in financial regulation and supervision, as well as in the oversight of payments system operations, central banks play a key role in preserving and enhancing the safety and soundness of the banking and financial system (Alicia and Rio 2003).

1.2  Statement of the Problem

Continuous fall of the inflation rate has been experienced since 1996 as a result of stringent monetary policies of the Central bank. It however, increased in 2001, 2003, 2005, and 2008 to 16.5%, 23.8%, 11.6%, and15.1% respectively (CBN, 2010; CBN, 2011). Structural factors have proven to be important in the inflation spiral. Reduction in oil revenue (a supply shock) led to a reduction in real income, with serious distributional implications. As workers pushed for higher nominal wages, while producers increased mark-ups on costs, an inflationary spiral followed. In addition to these factors the government also had a transfer problem in order to meet debt obligations. The failure of the monetary policy in curbing price instability has caused growth instability as Nigeria’s record of development has been very poor. In marked contrast to most developing countries, its GDP was not significantly higher in the year 2000. It was 35 years before. As many economic indicators show, Nigeria’s economy has experienced different growth stages. The GDP growth rate recorded negative growth in the early 1980s (-2.7 in 1982, 7.1 in1983 and -1.1 in 1984). The growth rate increased steadily between 1985 and 1990 but fell sharply in 1986and 1987 to 2.5% and -0.2%. Except in 1991 when a negative growth rate of -0.8% was recorded, 1990s witnessed an unstable growth. However, the growth rate has been relatively high since 2001. An examination of the long-term pattern reveals the following secular swings: 1965-1968 Rapid Decline (civil war years),1969-1971 Revival, 1972-1980 Boom, 1981-1984 Crash,1985-1991 Renewed Growth, 1992-2011Wobbling. The main thrust of this study is to evaluate the effectiveness of the CBN’s monetary policy over the years. This would go a long way in assessing the extent to which the monetary policies have impacted on the growth process of Nigeria using the major objectives of monetary policy as yardstick.

1.3  Objectives of the Study

The main objectives of the study are as follows:

i.     To examine the nature of the relationship that exist  between monetary policy tools (bank rate, exchange rate and interest rate) in economic growth in Nigeria.

ii.    To offer some recommendations based on the findings of the study.

1.4  Research Hypothesis

H0:  The role of central Bank of Nigeria has no significance impact on gross domestic production.

H1:  The role of central Bank of Nigeria has significance impact on gross domestic production.


The study is limited in scope to the monetary policies of CBN between 1999 to 2004 and their impact on the development of the Nigerian economy.


The researcher encountered some constraints in the course of gathering data and conducting the research work. Among the  major constraints are;

i. Difficulty in accessing Central Bank Officials to cooperate in

releasing data.

b. Time for  the study  was  too short  and  financial problems  were also experienced by the researcher.

But with greater enthusiasm, all these constraints were overcome, and enough data colleted which assisted in conducting the research.


This is an area of interest not only to policy makers but students, academicians as well as the public sector. The study is intended to guide us understand and appreciate monetary policy, the tools used towards the achievement of the policy, and to evaluate its impact in the development of the Nigerian economy, and to proffer solutions to problems of implementing monetary policy.

The study is important to policy makers, students of finances, economics, academicians, and also a guide to the public sector generally in understanding monetary policies, their implementation and their impact on economic growth and development in Nigeria.


LIQUIDITY; The ability of a bank to meet its current obligations when they are due, and is normally a short term debt measures.

RESERVE REQUIREMENT; This refers to the proportion of total deposit liabilities which the commercial and merchant banks are expected to keep as cash in vaults and deposits with the Central Bank of Nigeria.

QUANTITATIVE DIRECTIVES: These are directives from the Central Bank of Nigeria to the banks and other financial institutions under its control as to the total amount of money which they may lend.

NARROW MONEY (Ml): An "immediately spendable money". All changeable deposits, currency and travelers cheques in the hands of the public.

BROAD MONEY (M2): Ml plus non - chequeable savings deposits and money market mutual funds shares.

FINANCIAL SYSTEM: The channel or conduct through which the sayings of surplus sectors (the household) flow to the deficit  sectors (business organizations).

MONETARY SYSTEM: A system whose main function is the provision of adequate stock of money or currencies i.e. notes and coins for the economy.

CAPITAL ADEQUACY: The regulations imposed on the banks both national and internationally that they should have sufficient capital to support the business and services that they offer in whatsoever currency such operations takes place.

MACROECONOMIC: The branch of economics that considers the

relationships      between      the      large-scale      movements     of unemployment gross national products, savings and investments, etc

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