INFLATION CONTROL THROUGH THE USE OF CENTRAL BANK OF NIGERIA (CBN) INSTRUMENT OF CREDIT CONTROL . A RESEARCH PROJECT MATERIAL ON BANKING AND FINANCE
1.1 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:
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 increansement in wages and salaries especially if there is no increansement in productivity and also increansement 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
© Regulate the banks leading into a view to ensure that they exercise prudence in their granting of loans and advance.
Thereby curtailing inflation in the economy.