PROPOSAL
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.
TABLE OF
CONTENT
Title page
Approval page
Dedication
Acknowledgement
Proposal
Title page
CHAPTER ONE
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
CHAPTER TWO
2.1 Review of
related literature
CHAPTER THREE
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)
CHAPTER FOUR
4.1
Summary of finding
CHAPTER FIVE
5.1 Recommendation and conclusion.
CHPATER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The 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
format.
REVIEW OF MEACRFO ECONOMIC AND POLICY ENVIRONMENT IN 2001
Macro 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 ports.
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
1.3 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.
1.4 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.
1.5 LIMITATION OF THE STUDY
When the
emphasis liquidity management in our monetary programmes, it is because we
understand to maintain an optimal level of liquidity that is consistent with
the absorb capacity of the Nigerian economy so as to avoid over heading the
economy
In our use of monetary positions, we
recognize that to exchange rate has to be competitive if investors are to
choose Nigeria
our many economies that they have to choose from, simply put, our exchange rate
should and indeed must reflect market
realities to promote efficiency in resources allocation and productivity
growth. It is therefore, our goal at the CBN to pursue monetary policy that is
consistent with the maintenance realistic and stable exchange rate regime, via
a vis those of our trading past, to accomplish the objectives of monetary
policy, the CBN has over time adopted a mix of policy instrument as was needed to deal with specific
circumstances while the intermediate target has remained some aggregate.
REFERENCES
Afolabi Layi (199) International
Monetary fund (1977) Annual report Monetary economy Heineman educational boons
PLC
Onuaha C. (1997) Foundations
financial management port Harcourt educational books and investment LTD
Orji J. (2001) Financial
of International Trade, Enugu Splash media organization.
Canals. J. (1997) Universal
banking, International comparison and theoretical perspective oxford university
press..
Oduwole S. (2000) University
banking, Challenges and prospects for the Nigeria banking industries and
economic report march.
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