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OPEN MARKET OPERATION AS AN INSTRUMENT OF MONETARY POLICY IN NIGERIA.(A CASE STUDY OF CENTRAL BANK OF NIGERIA (C.B.N)

CHAPTER ONE

  1. INTRODUCTION

Prior to the introduction of structural adjustment programme in September 1986, the main instrument of monetary policy employed by the Nigeria monetary authority were mainly direct control which comprise the imposition of credit allocation supplement to varying degrees by each and liquidity ration requirement.

        The prolong use of these direct control generated considerable problems and become counter productive some of the negative effect of the direct control include reduced competition in the financial system leading to inefficiency and misallocation of resources in the banking system or section credit ceiling generated arbitrary and high lending ratio link of transparency in transaction and the employment of various plans to circumvent the control by window dressing the use of balance sheet item and channeling of transaction through uncontrolled institution especially mushroom finance house. In her effort at selling lasting solution to these problem of structural implementation balance.

 Nigeria embarked on a structural adjustment progarmme (SAP) the major aspect of the deregulation of appropriate pricing policy in all major sector with greater reliance on market force and reduction in complex administration control. But due to the unreliability of the economy, the objective of this programme could not in any way be achieved due to this, the apex of direct control to open market operation in one form or another is the main instrument of monetary control to open market operation in one under the direct or market based system of monetary management. The use of one is typically supported by reserve requirement and discount window operation by central bank.

OMO essentially in the sale or purchase of eligible bill or securities in the open market by central bank for the purchase altering the supply of bank reserve balance the level of primary money and consequently monetary and financial condition by allowing the price of securities offered in the market to move in line with prevailing condition.

The central bank tries to elicit the banks and other institution which participate in OMO.

In the open market sale of example the bank subscribing to the offer down on their reserve balance at the CBN thereby reducing the overall liquidity of the banking system to creative credit which currently are the biggest investors in government treasury bill, makes their subscription through the discount houses which have been active in promoting a secondary market in these securities pillowing the modest initial offering of 250 at the maidan one session in June 1993.

Twenty subsequent session were conducted in 1993 at which a total of 44.950m federal government treasury bill have offered for sale and total of 49.965m were sold to subscriber qualitative control anchored on the use of open market operation (OMO).facebook sharing button Sharetwitter sharing button Tweetmessenger sharing button Sharewhatsapp sharing button Shareemail sharing button Email

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