Monetary policy is one of the macroeconomic instruments with which nations (including Nigeria) do manage their economies, Ajie and Nenbe, (2010). According to Ubi, et al (2012), monetary policy is an aspect of macroeconomics which deals with the use of monetary instruments designed to regulate the value, supply and cost of money in an economy, in line with the expected level of economic activity. It covers gamut of measures or combination of packages intended to influence or regulate the volume, prices as well as direction of money in the economy per unit of time. Specifically, it permeates all the debonair efforts by the monetary authorities to control the money supply and credits conditions for the purpose of achieving diverse macroeconomic objectives. In Nigeria, the responsibility for monetary policy formulation rests with the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance (FMF), Ajie and Nenbe, (2010); Ajayi and Atanda, (2012); Abata et al., (2012).
In Nigeria as in other developing countries, the objectives of monetary policy include full employment, domestic price stability, adequate economic growth and external sector stability. The supplementary objectives of monetary policy include smoothening of the business cycle, prevention of financial crisis and stabilization of long term interest rates and real exchange rate, Mishra and Pradhan, (2008). In pursuing these objectives, the CBN recognizes the existence of conflicts among the objectives necessitating at some points some sort of trade-offs Uchendu, (2010). The Bank manipulates the operational target (monetary policy rate, MPR) over which it has substantial direct control to influence the intermediate target (broad money supply, M2) which in turn impacts on the ultimate objective of price stability and sustainable economic growth, Okafor, (2009); Uchendu, (2009).