Title Page




Table of Content


1. 1 Background of the Study.

1.2 Statement of the Problems

1.3 Objective of the Study.

1.4 Significance of the Study.

1.5 Scope of the Study.

1.6 Definition of Key Terms.

1.7 Plan of the Study.


2.1 Monetary Theories

2.2 Process of Formulation of Monetary Policy.

2.3 The role of Monetary Policy.

2.4 Instrument of Monetary Policy.

2.5 Targets and Indication of Monetary.


3.1 Brief History of Central Bank of Nigeria.

3.2 Research Methodology.

3.3 Sources of Data Collection.

3.4 Method of Data Analysis.


4.1 Review of Monetary Policy in Nigeria.

4.2 Monetary Policy of year 2001 Fiscal Year.

4.3 Comparing Year 2001 Fiscal Year Monetary Policy.

4.4 Impact of Monetary Policy on Nigeria Financial System.


5.1 Summary 

5.2 Conclusion.

5.3 Recommendations.




The growing importance of the modern state of ensuring adequate provision for living and the need for economic growth in large part of the world have contributed to the entrance of the prestige of monetary policy as an important instrument of economic policy.

This write up examine and explain various monetary policy instruments that have been used in UK since the inception of the central Bank of UK which is the regulator body used by the federal government to regulate and control the money in circulation. The policies are designed in an attempt to change the trends of some monetary.

Variable in particular and direction so as to induce the desires behavoural change in the monetary authorities used policies in controlling some major macro-economic problems now rampart in our society.

One of the primary responsibilities of any government is to ensure that citizen attain a high standard of living, the monetary policies consist of action by government to help accusing economic objectives.

Some of these objectives are as follows:

i. Full employment.

ii. Rapid economic growth and development.

iii. Price stability.

iv. Equality and distribution of income.

v. Stable foreign exchange rates.

vi. Attainment of self reliance in the economy.

vii. Correction of balance of payment deficit.

Any government whether a developed or a developing country economic objective which must be economic growth as to maintain the economy at its full potential output level, the improvement of the function of the economical by restraining excess demand and inflationary price increase from imposing real cost on society and the restraint off any tendency of the economy towards a chronic balance of payment disequilibrum. Therefore, in an effort to achieve these objectives, government have put in place a number of different policy tools such as monetary policy that is topic under discussion other policy tools are fiscal policy, credit policy, foreign trade policy and exchange rate policy.

The research work will also look into the instrument or weapon of monetary policies such as open market operation, interest rate, special deposit, reserve requirement, request and directions and finally given suggestion and recommendation on how these policies could be effectively used. 


Monetary policy has a major role to play in the Nigeria finance system and the economy in general.

To ensure efficient and effective growth in the economy monetary policy must be allowed to stay for a period of three to four years to ensure stable economy growth and enhance the control of monetary in the money and capital market.

The monetary policy when not in good planning and control will contributes to the inflationary trend of the nation economic although the performance sheet of the economy shows that economic is on good track but inflation rate continue to gallop for instance during 1999 fiscal year the rate of inflation stood at 15 percent, in year 2000, it’s reduced again to 0.9 percent at present it as shoot up to 5.5 percent.

These have contributed to the poor economic growth in stabilization in the market system. Inequitable distribution of income the above discussion shows that not allowing the monetary policy to last for longer period before introducing another current measure is a problem facing the economic of the country and also the regulatory body of the policy ought to take caution and exercise adequate economic skills aim at acquiring the best for the country.


The main objective of this study is to indemnify the importance and impact or to evaluate the role monetary policy and its impact on the financial system.

And to examine critically the adequate of monetary in UK and the relate the general theoretic background and establish specific monetary policy indicated by the structure and character of UK economy.

In addition, it will also examine the historical potential of contemporary monetary policy in changing economic circumstance of Nigeria growing effort and possible prefer suggestions.


This research work is important to every sector and everyone within nation. Economists agree that money plays an important role in the economic development and growth process of a nation, ever since the days of an ancient Greek writer-philosophy plato Aristotle and xylophone write dealing with money have dwelt on the issue of monetary policy. Monetary policy involves some process which will bring about the growth of the economic, these are the objective of monetary policy ( the goals of the policy) policy formulation and choice of policy instrument, policy implementation and policy evaluation / adjustment.

All these process will bring about great impact on the activities of the financial institution that helps in the successful execution of the policies through their dealing with general public the introduction of these policy have increase the level of activities in the economy.


The research work is designed to cover almost all the area of the goals of monetary policy and it is instrument. It will deal with the impact trend, and indicator of various monetary tools been used in Nigeria finance system to the supply of money and cost is Nigeria banking system.


In line with the above discussion, these stages briefly states the outline of the various chapters in the project work in the light of the above, the project shall be divided into five chapters in order to achieve the aim of the project each chapter shall deal with all the important aspect of the topic. 

Chapter one of the report will contain the introduction of the project work by giving the background of the study statement of problem of study objective of the study. Significant of the study, scope and limitation of the study and the organization of the study. 

Chapter two will focus and deals with review of various literature materials on monetary policy.

Chapter three will focus on the brief history of the regulatory body of monetary policy in Nigeria which is the Central bank of UK and the research methodology used. 

Chapter four will analysis stating the information received so far on the monetary that is the review of monetary policy in UK comparision of current year monetary policy with previous year and the impact of monetary policy and UK finance system.

Lastly, chapter five would cover on will be devoted to summary conclusion are recommendation.

Through its influence on aggregate demand and hence on output. This school of thought even argues that a modest rate of growth because it is only in such circumstance that the rate of profit would rise and motivation to invest would increase .

It is further argued that the use of monetary policy to achieve growth can aid achievement of some other objective such as full employment.

The other view on monetary policy is the classical view as defined by Milton, according to this view monetary policy can not be used to achieve a legal unemployment which is lower the natural rate of unemployment. However in an increase in money supply will simply lead to a repetition of the business cycle which clearly show the rate of stabilization in the economy.


Keynesian view is that monetary policy should be directed out interest rates rather than money supply and that monetary policy should at all times be directed at interest rate rather than money supply and that monetary policy should at all times be subsidiary to fiscal.

Policy the monetarists recommend that control of money supply should be major concern of the monetary authority. The Keynesian view says since inflation is a sign of economic over healing and rise in interest rate will tend to cool it down by checking investment and thence overall demand conversely during the period of recession economic activities could be stimulated by lowering the interest rates.

However, Keynesian argue that monetary policy will be more effective if the authorities aim to control interest rate directly rather than indirectly through the monetary supply.

Therefore, the Keynesian versus monetary debate given the conflicting advice to government on the role and effectiveness of monetary policy. According to Paul Einzigg, monetary policy is the attitude of the political authority toward the  monetary system of the communicate under the control. 

Declaring this definition tool vague to be of sufficient practical use, the same write defined an idea monetary policy as the effort to reduce to a minimum the disadvantages and increase the advantage resulting from the existence and operation of monetary system.

M.C vaish (1981) gave his own definition of monetary policy this is mean/ the central bank of UK control over the supply and cast of money as an instrument for achieving the objective of economic policy of the government.



Various definitions have been giving to monetary policy by different economist.

Eingham 1980 defined monetary ”as the credit control measure adopted by the central bank”. This definitions only emphasizes the central bank control over credit base.

Livesey 1978 gave his own definition of monetary policy as “order to influence the supply of money implemented via a wide range of institution both public and private to influence the level O !” Economic activity. It is also concern with the cost of money which influenced not only by supply but also by demand condition.

This definition emphasize monetary policy as the management of controlling the cost of money in circulation and in activity economic growth by minimizing flunctuation in prices and by providing economic environmental conducive for man levels of saving and investment. Furthermore, Uzoga 1981 defined the policy in a more elaborate way as “the management of the extension of contraction of the volume of money in circulation for the specific purpose of achieving objectives of an economy include.

a.) High level of employment.

b.) Stable price level.

c.) Rapid growth of gross national product.

d.) Favourable balance of position.

e.) Promotion of a free market economy.

f.) Satisfaction of collective demands.

g.) Equitable income distribution.

h.) Protecting infant industries and the encouragement of perorily sectors.

i.) Encouragement of balance population development.

j.) Promotion of labour and capital mobility.

These objectives are determined by the nature of the problems to be solved and by the environment in which those problems exist in the light of this, however only the first four objectives can be influenced to some extant through the application of monetary policy instrument alone.

The rest of objectives require the application of the instrument of fiscal year policy on those direct control. Therefore, the above definition stressed the same idea about monetary policy is an economy are to maintain full employment to ensure domestic price stability stimulate economic growth by avoiding mis-allocation of resources and maintain healthy balance of payment equilibrium to achieve these objective different “ monetary policy instrument can be used effectively. Falegan 1978 says monetary policy deals with the directing control of money supply by the monetary authorities in order to achieve stated or desired economic goals. However government believe that it rate of growth has effect on the rate of inflation, so monetary policy comprises those government actions which are designed to influence the behavior of the monetary, the first view belief that monetary of the economy definition isb concerned with admonishing and the controlling country money supply including currency and demand deposit and management of the foreign exchange rate. M.C uash view monetary policy for developing countries in the context of sustained economic growth has to be directed toward achieving the stability of foreign exchange rate at some realistic level this cell for such monetary policies that are ealauated to prevent recumbent inplation and frequent devaluation of currence of the developing countries. Therefore, the above definition stressed  the same idea about monetary policy but in different ways. This monetary policy deals which  how money. Supply is controlled in an economy.



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