Monetary Policy In Nigeria

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BACKGROUND OF STUDY. Rapid and sustainable economic growth (and financial development) remains the quest of every economy frontier, emerging and developed inclusively. Among the various drivers of economic growth, two important drivers of sustainable economic growth and development in any country are Effective Monetary policy and a Vibrant Capital market. Monetary policy is a measure designed to influence the availability, volume and direction of money and credits to achieve the desired economic objectives. In Nigeria, the authority to carryout monetary policy is vested in the central bank of Nigeria (CBN) through decrees 24 and 25 1991. (godwin 2010) Monetary policy is the part of economic policies that regulates the level of money and liquidity…show more content…
The major monetary policy instruments are: interest rate, money supply and foreign exchange rate. Broadly, there are two types of monetary policy, expansionary and Contractionary. Expansionary monetary policy increases the money supply in order to lower unemployment, boost private-sector borrowing and consumer spending, and stimulate economic growth. Contractionary monetary policy is when the central bank slows economic growth. This policy refers to either a reduction in government spending, particularly deficit spending, or a reduction in the rate of monetary expansion by the central bank. It is a type of policy or macroeconomic tool designed to combat rising inflation or other economic distortions created by central bank or government interventions. If not exercised with care, it could push the economy into a recession. It is also called restrictive monetary policy. It may seem this policy is designed to slow down economic growth, although this is not the case. Instead, restrictive policies are used to slow down potential distortions, such as high inflation from an expanding money supply, unreasonable asset prices or crowding-out effects in capital markets. As such, the initial effect of this policy might be a reduction in nominal gross domestic product (GDP), but the final result could be higher and more sustainable economic growth and a…show more content…
The capital market has been experiencing a recline over the years and therefore hasn’t been able to effective foster economic growth in Nigeria. In 2017 the Nigerian Stock Market which is our primary monitoring market, the key benchmark index, NSE ASI, YTD currently stands at +40.99% as the second most performing stock market in the world after Argentina 's Merval index turned out to be star performer of the year, having surged 89.68% YTD. The renewed efforts from the monetary and fiscal authorities in 2017 are greatly responsible for this performance. Proshare research (2017) The effects of monetary policy instruments such as interest rate, Money supply and foreign exchange rate on the activities / performance in the capital market can not be underwritten. This study seeks to deeply investigate the issues facing monetary policies and stock market activities and their overacting effect on the economic growth of

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