CHAPTER ONE

1. INTRODUTION

Monetary policyconstitutes the major policy thrust of the government in the realization ofvarious macro economic objectives. It is refers to the combination ofdiscretionary measures designed to regulate the control the money supply in aneconomy by the monetary authorities with a view of achieving stated or desiredmacro- economics goals.

  The monetary policies are designed toinfluence the behavior of the monetary sector. This is because change in the behaviorof the monetary sector influence various monetary variable or aggregate. Themonetary policy enforces at any point in time affect the level of money supplyeither by expanding it or through contraction of same. It influences the levelof and structure of interest rates and thus cost of funds in the the market, dependingon the prevailing economic to condition.

  The regulation and control of the volume and pieceof money is called discretionary control of money: discretionary in the sensethat it is made act the instance bank of Nigeria (CBN) has the responsibilityof controlling money and credit in the economy in order to check inflationaryand deflationary pressure. As the apex monetary authority, has the duty ofensuring that polices are set in motion to regulate the financial sector so asto operate in the same direction with the real sector in order  to realizenational economic objective.

   Sector 2(c) of CBN Decree 24 of 1991 asamended stated that one of the principle object of the bank (CBN) shall be “topromote monetary stability and a sound financial system in Nigeria “.While part v section 3 (a) of the same degree produce that the bank (CBN) shallpower to carry out open market operations for the purpose of maintainingmonetary stability in the economy of the country and without prejudice to thegenerality of the foregoing, the bank may also for that purpose issue sell,repurchase, amortize or redeem securities to be known as stabilizationsecurities (which shall constitute it obligation) and the securities shall beissue at such rate of interest and under such condition of maturity,amortization , negotiability and redemption as the bank may deem appropriate”.

 Moreover, these polices issued by the centralbanks are targeted toward the control of the commercial banks and thecommercial banks who mobilize these funds from individual depositor. Sometimesare restricted by the polices from engaging in some activities through shift ofthe of the monetary policy and that can affect the bank.

1.1   BACKGROUND OF THE STUDY

  Monetary polices has central role inmacro-economics managements, primary because of the close relationship betweenthe monetary aggregates and economic activities. This is time irrespective ofwhether one considering the monetarist or Keynesian framework.

 The monetary framework of an economy is definitely a scientific device but its application appears to be more of an art in practice , many factor other the logic of the theoretical framework, comes into play, some of the key determinant of the types of monetary management.

 The central bank derivable to introduce somemonetary instrument, this fact should be born in mind as we as the subject ofmonetary policy impact on the financial sector of Nigeria central bank.

1. STATEMENTOF THE PROBLEM

Monetary policy instrumenthave in one way or the other affect the operation of the banking system. Theimplication this either creates a positive or negative impact on the overall operationns of the commercial banks.

  However, the main aim of the monetaryauthority is to produce a regulated environment that would stabilize themacro-economic unbalance. In recent times, most commercial bank becomesilliquid. other problems therefore to be studied in this research workincludes:

1. Thenegligence exhibited by some com metrical banks in implementing some of thesepolices established by the monetary authority.
2.  The hindrances which have been militatingagainst the efficiency of the financial system in the country
3.  The impact of the monetary on the bankingindustry and the economy at large.
4.  The problem of irregularity in informationdissemination between the monetary authority, commercial banks and thecustomers.

THE EFFECT OF MONETARY POLICY ON THE BANKING INDUSTRY