THE EFFECTIVENESS OF MONETARY POLICY AS A TOOL FOR CONTROLLING INFLATION IN NIGERIA.

INTRODUCTION Nigeria still presents a clear reflection of the third world economy in which the growing economy has some working machinery, monetary and fiscal policies that aimed towards maintaining a balance in the entire economy so that growth and development, which is the ultimate goal of every economy, is realized.      Generally, monetary policy refers to combination  of measures designed to regulate the values, supply and cost of money in an economy in consonance with the level of economic activity. Monetary policy is a deliberate effort by the monetary  authorities to control its monetary supply and credit conditions for the purpose of achieving certain broad economic goals. The aims of monetary policy are basically to control the inflation, maintain a healthy balance of payment positions for the country in order to safeguard the external value of the national currency and promote an adequate and sustainable level of economic growth and development. The formulation is done by the Federal government, mostly announced during budget speeches while the enforcement of the policy is solely the responsibility of the central bank of Nigeria (CBN)> Inflation is the greatest challenge faling most developing countries like Nigeria today. Inflation is defined as a persistent and appreciable increase in the general prices level of goods and services in the economy. Inflation has being the “clas in the wheel” that motivates economy. It has made export products to become expensive in the international market and this impeded the expansion of the export market. Effective monetary policy produces economic growth and development. For a country such as Nigeria to achieve economic stability, she must place priority on efficient monetary policy. It is pertinent to note that the central bank has not been able to come up with credible monetary policy in the recent times (years) to cure the unemployment, low saving, debt burden, low investment, unfavorable balance of payment, mass poverty treating the nation interest rate and high exchange rate. It has been observed that the Nigerian economy within the last 25 years has been engulfed in some economic problems. In Nigeria, inflation has been a serious economic problem for many years. Prices of goods and services has been on the increase and this has affected every aspect of the economy. Cost of living has been very high with the consequences of poor living standard and less savings. With the present economic crisis playing the nation, Nigerians are yawning for credible monetary policy either expansionary or contractionary monetary policy depending on what economic goal the policy maker want to achieve. It becomes necessary for the monetary authorities to use various monetary policy. Instrument available to them. Such instruments are the general credit control and selective credit control instruments. Under the general credit control instruments are the open market operation (OMO), Rediscount rate, Reserve Requirement and Moral suasion, while the stock market margin requirements, control of terms of installment sales, mortgage credit restrictions and special directive belong to the selective credit control instrument. Given the above policy tools, it is expected that the monetary authorities through its agents, the commercial banks and financial intermediaries e.t.c will be able to make monetary policy reform for the economic well being of the country and thus the monetary policy objective such as inflation control will be attained. The measure of a country’s monetary policy rests on the extent to which it has achieved the aims and objectives of its monetary policy. Hence the focus of this policy is on effectiveness of monetary policy as a tool for controlling inflation in Nigeria. This is to find out whether the monetary measures adopted so far has been able to achieve the desired objectives.
LITERATURE REVIEWOtiti (1982:13) viewed monetary policy as a measure designed to regulate and control the volume, cost and direction of monetary and credit in the economy to achieve some specified macro-economic policy objectives, which can change  from time to time depending on the economic fortunes of a particular country. He further said that the objective of monetary policy includes; maintained price stability and balance of payment equilibrium and full employment. He maintain that monetary policy presupposes that there is some relationship between the supply and demand for money on one hand, and such economic aggregates like the general price level, output, incomes, savings, and investment etc. he continued by saying that the assumed relationship influences the mix of policy instrument used and consequently its effectiveness.Olaloku (1979:179) sees monetary policy as a deliberate action on the part of the monetary  authorities (the central bank of Nigeria and ministry of finance) to central the  money supply and general credit availability as well as the level of it cost either the rate of interests. He observed that the paramount objective of the monetary policy is placed on rapid economic development, with price stability, employment, equitable distribution of income etc.Ojo (1992) in his own contribution defined monetary policy as an act of controlling the movement of monetary and credit aggregated in the pursuance of stable price and sustainable economic growth.According to Anyanwu (1993:140) consider monetary policy as a major economic stabilization weapon which involves measures designed to regulate and control the volume, cost availability and direction of money and  credit in an economy to achieve some specified macro-economic policy objectives.Akatu (1993:322) Considers monetary policy in Nigerian context, as encompasses action of the central Bank that effect the availability and cost of commercial and merchant banks reserve balances and thereby the overall monetary and credit condition in the country.He goes on to say that the primary goal of such actions is to ensure that overtime, the  expansion in money and credit will be adequate for long-run needs of the growing economy at stable prices. According to him the effectiveness of monetary policy has in fact depended crucially on the stance of fiscal policy.Generally CBN briefs (1997) defined monetary policy as the  combination of measures designed to regulate the value, supple and cost of money in an economy in consonance with the expected level of economic activity.