In most countries of the world and particularly in
Nigeria, the economic policy makers such as Central Banks amongst others have
come to the realization of the need of pursuing price stability as their
primary objective. Price stability is generally assumed to mean having a low
level of price fluctuations and the achievement of stable inflation rate in an
economy. This situation has become necessary because of the inherent negative
effects of high inflation in an economy. To a developing economy like the
Nigerian economy, high inflationary trends would be considered disastrous if
not properly checked. These effects may manifest in the form economic downturn
and negative influence on the standard of living of the citizens.

In line with this opinion, the Central Bank of
Nigeria (2009) observed that the period covering from 1990 to 2000, the average
inflation rate had been above the double digit level (26%-51%) which rendered
most deposit rates negative in real terms. According to them, this also eroded
domestic savings and investments as well as real income.  Suggestions by the monetary authorities in
Nigeria state that high rate of inflation in Nigeria before and in the early 21st
century was as a direct result of policies that focused on stimulating faster
rate of economic growth and development. The inflationary trend since
independence shows that inflation in Nigeria has attained higher levels more
than 40% especially in the early 1980s and 1990s and during this period the
economy witnessed several economic distortions.

Similarly, the control of inflation in Nigerian
shows that from one political administration to another, the Central Bank of
Nigeria (CBN) has tried to initiate various monetary and other policies in an
attempt to control inflation. However, in spite of all these efforts and
policies, inflation rate still remains high and unyielding with pronounced
implications on economic growth and development. High inflation rate has helped
to force up interest rate, thus decimating investments and reducing the real
values of aggregate consumer wealth (as government debt and money), and hence
inhibits and distorts consumer spending. It also has raised domestic prices
relative to foreign trade, inhibits exports and stimulates imports thus
depleting the nation’s scarce foreign reserves and worsening the balance of
payments. High rates of inflation also distort savings and that investors tend
to divert scarce resources from productive uses.

Furthermore, the stress on price stability or low
inflation as the main objective of monetary policy may not be that other goals
of macroeconomic policy, such as maintaining a high level of employment,
achieving sustainable economic growth and attaining favourable balance of
payments are of less essence but that it could only be comprehended that price
stability can later promote economic growth and attainment of full employment
level. Consequently, there is therefore, an emerging unanimity that Central
Banks can consistently promote sustainable economic growth objective by
pursuing sustainable price stability through inflation targeting as a policy
technique.

 Inflation
targeting in this case refers to policy measure to direct inflation rate
towards an expected level using monetary tools such as interest rate to achieve
it. The actions of the Central Bank in this regard is expected to be very
transparent as this will enable investors to factor in possible interest rate
changes in their investment portfolios leading to a better economic stability
or fluctuations in price. It could then be established that inflation targeting
helps in stabilizing the financial system thus enabling reasonable level of inflation
rate in the economy. Inflation targeting since its adoption first in New
Zealand in 1990 have become promising that some Central Banks of the
industrialized and developing economies have declared that maintaining price
stability of the lowest possible rate of inflation is their only mandate(Riti
and Kama, 2015).

From early 1990s, many developed countries
especially in Europe and the Americas have moved towards implementing inflation
targeting (IT) as a framework for monetary policy while developing counties in
Nigeria especially Nigeria were not ready for it. In Africa, South Africa and
Ghana were the first to implement inflation targeting in 2005. The move to use
this framework by countries around the world has been attributed to several
factors but prominent amongst these factors is the strong determination to bring
down inflation rate to a minimal level to encourage domestic savings and
moderation in prices such that aggregate demand and income levels can be
improved.  Nigeria had indicated its
intention to transit into inflation targeting as a framework for monetary
policy since 2005 based on the positive results to which the framework have had
on the development path of the countries that had adopted it. The country had a
smooth take-off of inflation targeting as the Central Bank of Nigeria (CBN) had
successively transited from its monetary targeting framework into that of
inflation targeting. This study attempts to provide an examination of the
impact of IT on economic performance in Nigeria and assess its relationship
with other macroeconomic variables to cross check their level of performance in
the country.

1.2       Statement of the Problem