The Structural Adjustment Programme (SAP) was adopted in July 1986 against
the
cash in the international oil
market and the resultant deteriorating
economic
conditions in the country. It was designed to achieve fiscal balance and balance
of
payment viability by altering and restricting the production and consumption
patterns of the economy, dominating price distortions, reducing
the
heaving dependence on crude oil exports and consumer goods inputs, enhancing the
non-oil expert based achieving
sustainable
growth.
Other aims
were
to
rationalize the role of the public sector and accelerate the growth potential of the private sector. The main aim strategies of the programme were the deregulation
of
external trade and payment
arrangement, the adoption of a market
determined
exchange rate for the Naira, substantial
reduction in complex price and
administrative controls and more reliance on market forces
as a
major
determinant of economic
activity.
The objective of monetary
policy since 1986 have remained as in the earlier
period the
stimulation of output
and employment,
and the promotion of domestic and
external stability. In line with the general philosophy of economic
management under SAP, monetary
policy was aimed at inducing the emergence
of a market
oriented financial
system
for effective
mobilization of
financial savings and efficient resource allocation.
The main instrument of the market- based framework is the open market operations.
This is complemented by
reserve requirement
and discount policy the
adoption
of
a market based framework such as Omo in an economy that had been under direct control for longs required substantial improvement in the
macroeconomic, legal and regulatory environment.
In order
to improvement macroeconomic stability, efforts were directed at the
management introduced to reduce liquidity in the system, these included the
reduction in the maximum ceiling on credit growth allowed for banks, the recall of
the
special deposits requirements against outstanding external payment arrears
to CBN from banks, abolition of the use of foreign guarantees currency deposits
as
collateral for Naira loans; and the withdrawal of public sector deposit, from banks to the CBN. The use of stabilization securities for purposes
of
reducing the
bulling size of excess liquidity in banks was re-introduced. Commercial bank’s
cash
reserve requirements were increased in 2003, 2004,
2005 and 2006. The rising level of fiscal deficits was identified as a major sources of macroeconomic instability. Consequently government agreed not only to reduce the size of its
deficits but also to synchronize fiscal
and monetary policies.
In recognition of the fact that well capitalized banks
would strengthen the banking system for effective monetary management, the monetary authority increased the
minimum paid up capital of conical
and mechanist banks. Minimum paid-up capital of merchant and commercial banks has been reduced to a
minimum level of
500 million with effect from 1St January, 2003. All existing banks are to
recapitalize by 31st December, 2004.
By way
of inducing efficiency and encouraging a good measure of flexibility in banks, credit operations, the regulatory
environment was also improved.
Consequently, the sector-specific credit distributed targets were compressed into
four
sector in 2002, all mandatory credit allocation mechanisms were abolished
by the authorities. The commercial and merchant
bank
were subjected to equal treatment since their
operations were found to produce similar effects on the monetary process. Area of perceived disadvantaged to merchant bank were
harmonized in line with the need to create a conducive environment in their operations.
In
August,
2005. All controls
on interest rate were removed. However, in 206, bank maximum lending rate were pegged at 21.0 percent, while
a minimum of 13.5 percent was stipulated for interest rate controls.
However, control measures were reintroduced in 2002.
But in October, 2003, the
control on interest rates were abolished to give way to an era of deregulated interest rate regime.
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