In Nigeria, monetary and financial policies are carried out by the Central Bank of Nigeria in collaboration with the other relevant regulatory agencies of the government. However, the instrument autonomy granted to the bank in 1998 insulates it from undue political interference in its conduct of monetary and financial policies and, thereby, enable it to act more pro-actively and promptly in its policy responses to changes in economic conditions. As you may recall, the CBN adopted the indirect techniques of monetary control in 1993 with reliance on the use of market-based instruments, such as, Open Market Operations, complemented by reserve requirements and discount window operations. In addition, there was significant deregulation of financial activities, as the operation of the techniques of indirect monetary control requires a deregulated, competitive and sound money market. Other measures were also taken to strengthen the legal and institutional framework, as well as check excess liquidity in the system and foster prudential regulation.
Experience shows that monetary policy and banking activities have strong links.
Monetary policy is implemented through the banking system and influences the activities of banks and other financial institutions and vice versa. Thus, while some policy measures are designed to achieve appropriate growth of money stock, others are taken to foster safe and sound financial system. The guidelines do not only prescribe what the banks would do in order to foster a sound financial system and enhance macroeconomic stability, but also prescribe the penalties for default. Furthermore, the effects of the policy measures on the movement of money stock, and the health of the banks are regularly reviewed while the overall impact of policy on the economy is also appraised. This exercise assists the CBN to determine whether to continue with the existing measures or to initiate a review of the policy package, either to change the direction or to fine-tune existing policies.