The Effect of Monetary Policy on Inflation Control in Nigeria (2010–2024)

THE EFFECT OF MONETARY POLICY ON INFLATION CONTROL IN NIGERIA (2010–2024)

CHAPTER ONE

1.1 Background of the Study

Monetary policy remains one of the most important tools used by the Central Bank of Nigeria (CBN) to maintain price stability and promote sustainable economic growth. It involves the regulation of money supply, interest rate, and credit conditions in the economy to achieve specific macroeconomic objectives. In particular, monetary policy plays a crucial role in controlling inflation, which continues to be a major challenge in Nigeria (Adewoye, 2022).

Inflation erodes purchasing power, reduces savings, and creates uncertainty in investment decisions. In Nigeria, inflation has fluctuated over the years due to several factors such as exchange rate instability, high fiscal deficits, and rising import costs. The CBN has used various policy measures including the Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR), and Open Market Operations (OMO) to stabilize prices.

Despite these interventions, inflation has remained persistently high, often exceeding the CBN’s target range of 6–9 percent. For instance, the National Bureau of Statistics (2024) reported that inflation reached over 30 percent due to supply chain disruptions and food price increases. Consequently, the effectiveness of monetary policy in achieving price stability remains a subject of debate.

This study therefore examines how monetary policy instruments such as interest rate and money supply influence inflation in Nigeria between 2010 and 2024.

1.2 Statement of the Problem

Persistent inflation continues to undermine Nigeria’s economic stability. Although the CBN frequently adjusts monetary policy to control inflation, the desired results are not always achieved. High inflation has reduced the real value of income and discouraged long-term investment.

Moreover, structural problems such as weak financial intermediation, fiscal dominance, and exchange rate volatility have limited the effectiveness of monetary policy transmission. As inflation continues to rise despite frequent policy adjustments, it becomes important to assess whether monetary policy instruments truly influence inflation dynamics in Nigeria.

1.3 Objectives of the Study

The main objective of this study is to examine the effect of monetary policy on inflation control in Nigeria from 2010 to 2024. The specific objectives are to:

1. Analyze the trend of monetary policy indicators and inflation in Nigeria.

2. Determine the relationship between money supply and inflation.

3. Evaluate how interest rate adjustments influence inflation.

4. Identify policy measures that can enhance the effectiveness of monetary control.

1.4 Research Questions

1. What has been the trend of monetary policy and inflation in Nigeria between 2010 and 2024?

2. How does money supply affect inflation?

3. What is the effect of interest rate on inflation control?

4. Which policy measures can improve monetary policy effectiveness?

1.5 Hypotheses of the Study

• H₀: Monetary policy has no significant effect on inflation control in Nigeria.

• H₁: Monetary policy has a significant effect on inflation control in Nigeria.

1.6 Significance of the Study

This study provides insights into how monetary policy contributes to controlling inflation in Nigeria. It will help policymakers, especially the Central Bank of Nigeria, to understand which instruments are most effective in achieving price stability. Academically, the research contributes to literature on monetary economics in developing countries. It will also benefit researchers, students, and economists interested in understanding inflation dynamics in Nigeria.

1.7 Scope of the Study

The study covers Nigeria from 2010 to 2024, focusing on monetary variables such as interest rate, money supply, and inflation rate. Data will be sourced from the Central Bank of Nigeria, National Bureau of Statistics, and the World Bank.

1.8 Definition of Key Terms

Monetary Policy: The regulation of money supply and interest rates by a central bank to achieve economic stability.
Inflation: A sustained increase in the general price level of goods and services in an economy.
Interest Rate: The cost of borrowing money, usually expressed as a percentage.
Money Supply: The total amount of money circulating within an economy.

References

Adewoye, A. (2022). Monetary policy and inflation dynamics in Nigeria. African Journal of Economics and Policy Studies, 15(3), 44–59.
Central Bank of Nigeria (2023). Monetary Policy Report. Abuja: CBN.
National Bureau of Statistics (2024). Consumer Price Index Report. Abuja: NBS.