1.1 Introduction
Monetary policy action is the prerogative of the central bank and monetary authorities of the country used for the management of money supply and interest rate in order to achieve macroeconomic objectives like employment, industrial growth, inflation, consumption, etc. Through monetary policy, economic activities and objectives of the country can be influenced either by expansionary or contractionary stance. Monetary policy stabilizes the economy better under a flexible exchange rate system than a fixed exchange rate system and it stimulates growth better under a flexible rate regime but is accompanied by severe depreciation, which could destabilize the economy meaning that monetary policy would better stabilize the economy if it is used to target inflation directly than be used to directly stimulate growth (Busari et al. 2002).
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitation of the study and Definition of terms.
1.2 Background of Study
Monetary policy in Nigeria has been conducted under wide ranging economic environment since the establishment of the central bank of Nigeria (CBN) over forty years ago. However, in recent years, the federal, government has made conscious and determined efforts to set and attain a high standard of macro-economic variables in order to highlight the impact of monetary policy on economic growth in Nigeria however, due to present challenging conceptual and technical problems these efforts have not shown their full weight on the position of the economy. In essence right from the formulative years achieving aggregate economic potentials, the main objectives of the monetary policy were healthy balance of payment position as well as the acceleration of the price of economic development and full employment.
Monetary policy has central role in macroeconomic management, primarily because of the close relationship between the monetary aggregate and economic and economic activities. This is true irrespective of whether one considering the monetarist or Keynesian frame work.
The monetary framework of an economy is definitely a scientific device but its application appears to be more of an act in practice, many factor other than the logic of theoretical framework, comes into play, one of the key determinant of the types of monetary management is the economic environment , although it may be derivable to introduce some monetary instrument , the environment for their effective use may not be suitable, this fact should be born in mind as well as the subject of monetary policy impact on the financial sector of Nigerian economy over the past decades, the shift in the approach to economy management from direct government control to market base policy having gain momentum, both in the industry and developing countries.
The driving force has been the desired for enhanced efficiency in the mobilization and utilization of resources. In this context, an increasing number of countries have embarked on upon a comprehensive adjustment design to promote a macro- economic environment and also provide a versatile institutional arrangement necessary for free market economy.
An important element of this adjustment process is the financial sector reforms that will help to establish a solid formation for effective implementation of market based monetary policy. The effectiveness of this adjustment to an improvement in Nigeria economy is what border this researcher and by that seeking for adequate solution to the solution to the problem. It is on this background that this study would investigate the Impact of Monetary Policy on the Reformation of the Financial Sector of the Nigeria Economy with special focus on major growth components.
1.3 Statement of Problem
Investigation revealed that the general fluctuation behavior and distress witnessed in the financial sector of Nigeria is one general issue that has been of a source of concern to an average Nigeria analyst and hence have sought for means of a better financial cycle with excellent operation especially in the banking sector. It is the plan of the study to give sufficient background on the already evolved monetary policy in Nigeria so as to present a clear picture of the effort to introduce open market operation or to fund a solution to distress economy as an instrument of reforming the Nigeria financial sector.
1.4 Aim and Objectives of Study
The aim of the study is to examine the Impact of Monetary Policy on the Reformation of the Financial Sector of the Nigeria Economy. In achieving this aim, the following specific objectives were laid out as follows:
- To investigate the impact of the monetary policy on economic growth in Nigeria;
- To assess one of the tools of indirect management in Nigeria and its effect on the financial sector of the Nigeria economy;
- To examine the challenge posed to the monetary authority in Nigeria; and
- To investigate the impact of the Monetary Policy Rate on the Nigerian Manufacturing Sector Gross Domestic Product.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Does monetary policy has any impaction the reformation of the Nigerian financial economy?
- Will monetary policy play a central role in macro-economic management?
- Will monetary policy reformation have negative impact on Nigerian financial sector?
- Does environment needs to be considered before introducing same monetary instrument?
- Is there any relevance between monetary policy and financial reformation?
- What is the impact of the monetary policy on economic growth in Nigeria?
- What is the impact of the Monetary Policy Rate on the Nigerian Manufacturing Sector Gross Domestic Product?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One:
- H0: The monetary policy instruments do not have significant impact on the reformation of financial sector in the Nigeria Economy.
- H1: The monetary policy instruments have significant impact on the reformation of financial sector in the Nigeria Economy.
1.7 Significance of Study
The relevance of this research would not be out point to state that any study carried in examine the impact of monetary policy on the reformation of financial sector of Nigeria economy is significant to all aspect of the nations.
The outcome of the finding of this research will have both theoretical and practical use to Scholars, Industrialist, Businessmen, Financial Analyst and General Public. The study will also go long way to broaden the knowledge of the populace in the usefulness and effectives of monetary policy as it affect the financial sector of the country.
1.8 Scope of Study
The scope of this research is focused on the Impact of Monetary Policy on the Reformation of the Financial Sector of the Nigeria Economy.
1.9 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Research Material: availability of research material is a major setback to the scope of the study.
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.10 Definition of Terms
Monetary Policy:
An economic stabilization weapon used by the monetary authority to regulate the volume, cost, availability and direction of money and credit in the economy.
Monetary Circulars:
They are guidelines the country used to direct the affairs in the allocation of credit within the economy.
Regulation:
This is system where the activities of the zenith banks like interest rates are controlled by the central government (CBN).
Profitability:
The ability of the bank to make a maximum returns to satisfy the interest of its customers.
