THE CONTROL OF CBN OVER THE COMMERCIAL BANK
The Central Bank of any country controls the financial activities of commercial banks in the following ways: 1. Open Market Operation: This involves the buying and selling of securities from and to commercial banks in order to increase and reduce the volume of money in circulation. If the central bank feels that the money in circulation is too small and wants to increase it, it will buy securities from commercial banks. By buying securities, it will increase the volume of money in the possession of the commercial banks and increase their ability to give more loans to members of the public, which will help to add more money in circulation. On the other hand, if the central bank feels that the amount of money in circulation is too much and wants to curtail it, it will sell securities to commercial banks. This will extract more money from commercial banks and at the same time reduce their lending powers and thereby decreasing the amount of money in circulation in the country. 2.Bank Rate: This which is also called discount rate, is the rate of interest the central bank charges commercial banks and other financial institutions for discounting their bills. If the central bank feels like curtailing the lending powers of commercial banks and other financial institutions, it will raise its discount rate, which will force other rates to rise. If the rate of interest charged by commercial banks and other financial institutions is high because that of the central bank rate is high, it will make borrowing very exorbitant and will scare people away and the rate of lending will reduce.On the other hand, if the central bank lowers its discount rate, the lending rate of commercial banks and other financial institutions will also reduce. This will make borrowing cheaper and people will be attracted to borrow. INFLATION CONTROL THROUGH THE USE OF CENTRAL BANK OF NIGERIA (CBN) INSTRUMENT OF CREDIT CONTROL TABLE OF CONTENTS CHAPTER ONE: INTRODUCTION 1.1
BACKGROUND OF THE STUDY
1.2
PROBLEM OF THE STUDY
1.3
OBJECTIVE OF THE STUDY
1.4
SIGNIFICANCE OD THE STUDY
1.5
SCOPE AND LIMITATION OF THE STUDY
1.6
DEFINITION OF TERMS.
rationale
CHAPTER TWO: REVIEW OF RELATED LITERATURE. 2.1 AN OVERVIEW OF THE CBN CREDIT INSTRUMENT FOR INFLATION CONTROL THROUGH ITS’ MONETARY POLICY.
2.2 OBJECTIVES OF MONETARY POLICY ON INFLATION. 2.3 THE ROLE OF MONETARY POLICY ON INFLATION 2.4 INFLATION CONTROL THROUGH BANKING OPERATION 2.5 MONETARY / CREDIT FUNCTION 2.6 INSTRUMENTS OF MONETARY (CREDIT) CONTROL USED BY THE CBN TO CONTROL THE AMOUNT OF MONETARY OF INFLATION IN CIRCULATION 2.7 CAUSES OF INFLATION IN NIGERIA 2.8 EFFECT OF INFLATION IN NIGERIA. REFERENCES. CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY 3.1 RESEARCH APPROVAL 3.2 SOURCES OF DATA 3.3 METHOD OF INVESTIGATION 3.4 LOCATION OF DATA CHAPTER FOUR: SUMMARY OF FINDING. 4.1 Summary of finding. CHAPTER FIVE: 5.1 RECOMMENDATIONS
5.2 CONCLUSION
BIBLIOGRAPHY. CHAPTER ONE INTRODUCTION.
BACKGROUND OF THE STUDY Inflation has been a purpose facing many countries of the world especially the developing countries. It started during the early 60s, which results to the incorporation of economic policies as measures to reduce the effect of the inflation in the economy. And most of these measures taken by developing countries to check the problem of inflation are in the form of the use of central bank instruments of credit control. This is aimed at reducing the volume of money in circulation and maintaining it to ensure low cost of living. Nigeria as other developing countries is also faced with the problem of inflation. In Nigeria inflation has a problem for policy makers since the 1990s. And ever since then to date the rate of inflation is on the increase. In defining what inflation is various perspectives from different economists are as follows: 1. Whereby too much money is chasing two few goods 2. Whereby there is a fall in the purchasing power of money. 3. Where there is an increase in the amount of money in circulation. 4. Where there is an excess of wage clearing over productivity growth. For the purpose of this study inflation is defined according to Ben Chukwuemeka Anibueze Banking Practice volume three as a sustained rise in the general level of prices of most goods and services that is to say that there is always and increase in price without inflation. The causes of inflation in Nigeria can be attributed to four major factor which are money supply, the nature of government expenditure and policy, limitation in real output and strong influence of imported inflation. The supply of money would be affected due to incensement in wages and salaries especially if there is no incensement in productivity and also incensement in petroleum pump price which the federal government has initiated can also result to inflation. Also, government expenditure can create or increase the rate of inflation. This is due to some uavaidulde government consumption expenditure on the economy. The central bank of Nigeria has tried to regulate the liquidity position in Nigeria economy through its credit guidelines some of which are: (a) Control of the rate of expansion of commercial and merchant banks aggregate loans and advances. (b) Guide the banks in channeling their credit to difference sectors of the economy
Š Regulate the banks leading into a view to ensure that they exercise prudence in their granting of loans and advance. This guideline helps in regulation of expansion of money circulation. Thereby curtailing inflation in the economy. 1.2
PROBLEM OF THE STUDY
The central bank of Nigeria being the upper bank in empowered with the responsibility of formulating and executing monetary policy in Nigeria. There are many objectives behind the formulation of monetary policy, which varies with time and places. In Nigeria they stand as (a) Maintenance of confidence in Nigeria currency through measures to stability domestic wages and price. (b) Support for increasing level of agricultural and industrial output. (c) Effective arrangements for supplementing current government expenditure and for providing developing finance. The bank of Nigeria was established by act of 1985 and empowered to use certain monetary control instrument available to it. With these instruments of credit control, cash and liquidity ratios are being regulated. The central bank of Nigeria can also reduce liquidity by completing government and it parastals to withdraw all their deposit from merchant and commercial banks and deposit some with the central bank. This will help in checking inflationny rate in the economy. 1.3
OBJECTIVE OF THE STUDY
The objective of this work is to explore into the hindrance against effective measures under taken to initial the rate of inflation in Nigeria. It will also determine the effectiveness of the use of various instrument of credit control employed by the central bank of Nigeria to check the volume of the economy. The work will further ascertain why inflations rate will seems uncontrollable undermining all the measures that has been taken to reduce it at least to a certain level. This research is aimed at identifying these problems and making necessary recommendations on ways to employ in order to control inflation in the country. 1.4
SIGNIFICANCE OF THE STUDY
This study will help in policy making and investment. It will also serve as a guide to monetary authorities on how to control inflation through the use of instruments of credit control in the country.
After identifying the problems, it would also help the federal government and central bank of Nigeria in allocating resource to different sector of the economy by checking its expenditures. Banks would also benefit from the study in solving their credit creation problem, which is a constraint to the profit making abilities in most banks. 1.5
DEFINITION OF TERMS
In order for one to understand this work easily there are certain terms one need to know. These include: (a) CREDIT: Credit is referred to as money which banks gives to customers in the form of loan and overdraft. (b) LOAN: This is whereby a bank borrows out or lends money to its customer, which will be paid back on a specified time with interest. Š OVERDRAFT: This is a situation whereby a customer with current account is allowed to withdraw money more than he has in his account. (d) INFLATION: It is a situation whereby there is a continuous increase in the general level of price of goods and services. MONETARY AUTHORITY: This is the institution that is charged with the responsibility of controlling the supply of money. The central bank of Nigeria (CBN) and Federal government are responsible for this. TERMS AND CONDITIONS Using our service is LEGAL and IS NOT prohibited by any university/college policies You are allowed to use the original model papers you will receive in the following ways: 1. As a source for additional understanding of the subject 2. As a source for ideas for your own research (if properly referenced) 3. For PROPER paraphrasing ( see your university definition of plagiarism and acceptable paraphrase) 4. Direct citing (if referenced properly)