A REASSESSMENT OF THE IMPACT OF MONETARY POLICY INSTRUMENTS ON PRIVATE INVESTMENT IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The Nigerian economy has been plagued with several challenges over the years. In spite of many, and frequently changing, fiscal, monetary and other macro-economic policies, Nigeria has not been able to harness her economic potentials for rapid economic development (Ogbole, 2010).

Monetary policy as the name implies is one of the major economic stabilization weapons which involve measures designed to regulate and could control the volume, cost, availability and direction of money and credit in an economy to achieve some specific macro-economic policy objective. It is a deliberate attempt by the monetary authority (Central Bank) to control the money supply and credit condition for the purpose of achieving certain broad economic objective. It is also the control of money and Bank credit thereby regulating cost of credit such a way it will affect aggregate demand in a direction that would continue to the achievement of healthy balance of payment, price stability and job opportunity (Anyawu, 1993)

However, it will settle in this study that macro-economic stability is a pre-requisite for sustainable growth and poverty reduction. Money supply is been controlled by the government in that firm/investors belief that its rate of growth has something to do with rate of inflation. Bryan (2010) stated that monetary policy should be directed to interest rate rather than money supply and that monetary policy should be at all time subsidiary to fiscal policy.

1.2 STATEMENT OF PROBLEM

The monetary policy implementations in the economy over the past years were detrimental to, and inconsistent with the development needs of economy. This concern has exerted pressures on the view to finding possible solutions. As a result of this the structural adjustment program was introduces in the economy and to liberalized the financial system. According to Anyanwu (1993) monetary policy is a 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 achieve macroeconomic 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 and supply will reduce.

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 separation of financial intermediaries. These problems have necessitated further for solution.

1.3 OBJECTIVES OF THE STUDY

The overall aim of the research study is “a reassessment of the impact of monetary policy instruments on private investment in Nigeria.

        Other specific objectives are:

  • To ascertain the effectiveness of money supply on profit after tax in Nigeria private sector.
  • To determine the impact of interest rate on profit after tax in Nigeria private sector.
  • To determine the correlation between tax and profit after tax in Nigeria private sector.

1.4 RESEARCH QUESTIONS

The following research questions will guide the researcher during the course of writing this research exercise.

  • Does any relationship exist between money supply and profit after tax in Nigeria private sector?
  • To what level does interest rate have significant impact on profit after tax in Nigeria private sector?
  • Does any correlation exist between tax and profit after tax in Nigeria private sector.
A REASSESSMENT OF THE IMPACT OF MONETARY POLICY INSTRUMENTS ON PRIVATE INVESTMENT IN NIGERIA