The Impact Of Monetary Policy On Economic Growth In Nigeria


This study examined the impact of monetary policy on economic growth in Nigeria from 1979-2008. The study adopted error correction model specification. Data was collected from CBN statistic bulletine, the statistical techniques with the aid of P.C. give software package. The finding from the study support the view that monetary variables used has no significant impact on economic growth in Nigeria

The study recommend autonomy of the monetary authority (CBN) to avoid bias in policy formation and implementation due to political expendency. The monetary policy should focus and manage these two elements monetary: the desired autonomy of the monetary policy, the degree of openness of capital.




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.

The Nigeria economy experience serious economic problems from late 1970 are to mid 1980’s. The country’s balance of payment came under severe pressure and was in persistent difficult during the period. The government current expenditure expanded without appreciable increase in revenue leading to widening fiscal deficit, which were largely financed with bank credit with adverse consequences on the general price level.

Generally, monetary control depends on the use of direct monetary instruments such as bank rate, open market operation changes in reserve ration and selective credit control.

The usually targets of monetary policy are money supply, availability of credit and interest rates. The major objectives of monetary policy are full employment, price stability (which also includes controlling fluctuations), economic growth and maintaining balance of payment equilibrium.

The uses of market based instruments such as the open market operation (omo) were not feasible because of extreme narrowness and under development nature of the financial market.

Between April 1992 and March 1976, the use of an aggregate credit ceiling was dropped for specifications on several distribution of bank credit. Throughout the period they also served quite effectively as instruments of monetary control.

The situation was particularly serious between 1982 and 1985 when stringent economic controls were not effectively used in arresting the deteriorating situation. Inevitable a period of economic adjustment has to come with the introduction of the structural adjustment programme in July 1986. the overall aim of the economic adjustment process embarked upon by the federal government in  July 1986 was to restructure – the federal production and consumption pattern of the economy through the elimination of price distortion and reducing of the over dependence of the economy on the export of crude oil and impart the raw materials and consumer goods. According to the monetary policy measures adopted under the programme ere designed on inflationary pressure and restricted the demand for available foreign exchange resources.

In the process of monetary management policy formulation is of utmost importance to specify the focus of the policy, otherwise it will be impossible to evaluate performance for example the objective of price stability and growth are infrequent conflict inflationary policies may enhance the rate of growth in the shortrun which may be sustainable in the longrun. Monetary expansions may raise output of goods and services and level of employment and consequently lead to price stability in the longrun.

In Nigeria the CBN wielded the primary responsibilities of initiating, implanting articulating and appraising a monetary policy, the result level of, macro economic instability in Nigeria is as a result of the sustained pursuit of expansionary fiscal and monetary policies coupled with inadequate response of output.

There have been some record of success and failures in the role of those policies are shown by empirical result of their performance. a good examination of monetary policy in Nigeria’s case shows that a better result will be attain if independence is being granted to the people concern in the implementation of such policies.


Monetary policy encompasses actions of the central bank, such actions are to ensure that the expansion of money and credit will be adequate for the longrum needs of the economy at stable prices. Monetary policy is not only the macro-economic instrument or tool. In Nigeriathe effectiveness of monetary policy has in fact depends crucially on the stance of fiscal policy exchange rate has also exerted an important influence on the economy, particularly from the supply side.

According to Anyanwu (1993:53) monetary policy is 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 achievement macro economic objectives or goals. The problem lies on making use of policy that will solve the economic problems instead of the economy to have low level of investment, income and also the level of demand supply will reduces. Another problem is how to restructure the production and consumption pattern of the economy through the elimination of price distortion.

Another   problem is the power response of the financial system to monetary policies control measures which has to do with lack of transparency in the operation of financial intermediaries.

1.                 2        OBJECTIVES OF THE STUDY

The main objective of this study is to asses the effectiveness of the monetary policies in Nigeria. However the following specific objectives would also be achieved.

i.                     To examine the trend and structure of monetary policy in Nigeria.

ii.      To empirical investigate the impact of the monetary policy on                        economic growth in Nigeria

iii. Evaluate the performance of monetary policy in Nigeria over the years under study


The hypothesis is to be testes in the course of this research work are.

Ho   – the monetary policy instruments do not have significant impact on the economic growth in Nigeria.

1.4            SCOPE OF THE STUDY

The economy is a large component with lots of diverse and sometimes complex growth components such as the gross domestic product, price level, exchange rate and balance of payment equilibrium. The study will cover all the facets that make up the monetary policy, but shall empirically investigate the effect of the major ones. The empirical investigation of the impact of the monetary policy on macro-economic variables in Nigeria shall be restricted to the period between 1979-2008. The study would also examine the monetary policy regimes that have been adopted in Nigeria since 1960to date as well as evaluate its performance.


It is impossible to conduct an examination or trace the entire role played by the monetary policy since the establishment of central bank in 1959.

Some changes took place when monetary policy was largely based on direct control and during the structural reform in 1986 some changes also took place.

This is occasioned by the time and finance necessary to embark on data collection and analysis.


The importance of this is because it will be over emphasized. This is because it will be meaningful and useful to the general public and stake holders when formulating and implementing monetary policy should be a collaborative endevour between the central bank of Nigeria and all informed stakeholders, through the responsibility to initiate this policy is on the former.

This study will also state the importance of monetary policy, which are as follows:

i.                    Monetary policy ensures efficient and effective control of the money in the economics.

ii.                  Monetary policy ensures that achievement of desired national objectives.

iii.                It influences the direction of economic progress in the country.

This   project will also be useful to other researches that are writing on a similar topic or making research to acquire knowledge.