CENTRAL BANK OF NIGERIA COMMUNIQUE NO. 54 OF THE MONETARY
POLICY COMMITTEE, FEBRUARY 5th , 2008


The Monetary Policy Committee of the CBN met on 5th February 2008
and decided to leave the MPR unchanged at 9.5 per cent.


1. The Monetary Policy Committee (MPC) met on 5th February,
2008. The Committee reviewed the major domestic and
international macroeconomic developments. It also focused
attention on the implementation of fiscal, monetary and
exchange rate policies in 2007, as well as the challenges for the
first quarter of 2008. The MPC noted that the domestic
macroeconomic environment was stable in 2007 despite tight
conditions in the global financial markets engendered by major
adverse financial developments like the US sub-prime market
crisis. The Committee observed with satisfaction the sustained
single–digit inflation rate throughout the year and the orderly
functioning of the foreign exchange and domestic financial
markets.
2. The Committee recognized that the naira appreciation has been
on
account
of
the
sustained
foreign
exchange
inflows
engendered by the favorable macroeconomic environment and
the investment climate as well as high rates of return in domestic
financial markets. It, therefore, restated its commitment to

ensuring continued monetary and price stability through the
pursuit of appropriate monetary and exchange rate policies.

Key Macroeconomic Developments
3. Inflation:

The
Committee
noted
with
satisfaction
the
improvement in inflation outcomes in 2007 compared with the
previous year. From 8.5 percent at end-December 2006, the yearon-year (headline) inflation closed at 6.6 percent in 2007,
approximately 2 percentage points lower. The decline in
inflation in 2007 was attributable to the restrictive stance of
monetary policy, complemented by considerable fiscal restraint
and favorable climatic conditions for food production in some
parts of the country. Inflation in December 2007, however, was
in contrast to inflation rates in the months of December 2005 and
December 2006. The Committee, therefore, expressed its
concern that given the rise in food prices in December 2007 and
the overall global and domestic outlook, it will be necessary to
ensure that inflation in 2008 is within single digit.
4. Exchange Rate: The MPC noted the steady appreciation in the
Naira exchange rate, particularly in the second half of 2007. In
January, 2008 the Naira exchange rate appreciated further and
the WDAS rate stood at N116.81/US$1 as at end-January. The
appreciation of the Naira exchange rate was driven largely by

rising
private
foreign
exchange
inflows.
The
Committee
recognized that inflows could continue as they were in December
and January. However, it felt that the exchange rate would settle
down at a reasonable level once the uncertainties in the global
economy are reduced as a result of the monetary and fiscal
actions being taken by industrialized economies.
5. External Reserves: The Committee observed that the gross
official reserves as at 31st January, 2008 stood at US$54.22
billion. This level of reserves would support about 28 months of
current foreign exchange disbursements.
6. Monetary Aggregates: Over the end- December 2006 level,
provisional figures indicate that broad money (M2) grew by
30.68 per cent in 2007. The growth in M2 was driven by the
increase in foreign assets (net) of the banking system as well as
the rise in credit to the private sector. While the Committee
expressed concern about the rapid growth of M2, it noted with
relief that this did not translate to higher inflation during the
year, partly on account of improved supply conditions.
7. Credit: The Committee noted that credit to the private sector
maintained an upward trend in the last quarter of 2007. Credit to
the private sector grew by 96% which is unprecedented in

Nigeria’s history. The MPC, however, noted that credit to
government remained negative all through the year.
8. Interest Rates: The MPC observed that the inter-bank call money
market rate increased slightly in December 2007, and January
2008, following the upward review of the MPR at the 201
meeting of the MPC which held on 4th December, 2007. As a
result the yield curve has become steep at the shorter end. The
Committee noted that the real interest rate however continue to
be positive.
9. Fiscal Stance: The Committee noted the salutary effects of
sharing the Paris Club debt refund to the states in dollars. The
Federal budget for 2008 has projected significant increases in
expenditure on account of government focus on infrastructure
development, environmental protection and social safety nets. As
these expenditures take time to yield results, the initial impact
would be on aggregate demand. The private sector’s own
investments in partnership with those of the public sector would
also have lagged effects on output. The Committee welcomes the
recent decision of the National Economic Council (NEC) to phase
the distribution of the proceeds of the Excess Crude Account to
be paid in US dollars.

THE OUTLOOK:
In the light of the above, the outlook for 2008 while being positive has
many elements of uncertainty. The Committee, therefore, decided:
1. To leave the MPR unchanged at 9.5 per cent
2. To continue the use of Open Market Operations (OMO) for
liquidity management and appropriate exchange rate policies.


Professor Chukwuma C. Soludo; CFR
Governor,
Central Bank of Nigeria,
Abuja.

February 5, 2008