PRESS RELEASE

CENTRAL BANK OF NIGERIA
COMMUNIQUE NO. 33 OF THE MONETARY POLICY
COMMITTEE FOR MARCH 2004


In keeping with the Bank’s policy of transparency in the conduct of
monetary and financial policies, the Central Bank of Nigeria hereby
publishes a summary of the deliberations and decisions of its Monetary
Policy Committee in March, 2004. The Committee met once during the
month and reviewed developments in the macro economy and the
financial market in February 2004.
The
overall
macroeconomic
environment
showed
some
improvement, as the monetary aggregates showed further contraction; the
foreign exchange market remained generally stable, with the naira
recording a modest appreciation and, the official gross external reserves
improved significantly. Moreover, the level of interest rates showed
further moderations.

A review of monetary developments indicated that the broad
measure of money supply (M2) fell by 2.8 per cent to N1, 959.5 billion,
compared with the 0.2 per cent decline recorded in the preceding month.
In the corresponding period of 2003, the M2, however, increased by 1.8
per cent. In addition, narrow money (M1) fell by 4.9 per cent during the
review month, compared with the 3.2 per cent rise recorded a month
earlier. The main contractionary factor of broad money supply during the

month under review was the substantial fall in bank credit to the domestic
economy, mainly the CBN’s net claim on the Federal Government. The
development was explained by the rapid increase in the Federal
Government’s deposits with the CBN to a level, which more than offset
Government’s gross indebtedness to the Bank. Credit to the private
sector, on the other hand, rose by1.1 per cent, compared with the 3.4 per
cent increase observed in the preceding month.
The moderation in demand pressure on the foreign exchange
market observed in January continued into February, 2004. Thus, total
foreign exchange sales in the Dutch Auction System (DAS) segment of
the market remained virtually unchanged at the January level, rising by
only 0.4 per cent to US$780.1 million. Consequently, the naira exchange
rate firmed and, in fact culminated in the appreciation to N135.00 per US
$1.00 in February from N135.3 in January, 2004. Over the same period,
the naira appreciated even more substantially in the Bureaux De Change
(BDC), rising from N147.79 to N142.95 per US$1.00. Helped by the
appreciable increase in foreign exchange inflow and moderation in the
demand, the official external reserves of the country rose substantially by
11.2 per cent to US$9.35 billion as at end-February 2004. That level of
external reserves could finance up to 8.1 months of foreign exchange
disbursements.

In February, 2004 activities in the money market remained generally
calm, as in the preceding month. Actual data on interest rates movement,

as at mid-February 2004, showed that bank deposits and lending rates
declined generally. The average savings deposit rate, for example,
declined marginally by 0.12 percentage point to 3.4 per cent, while the
average prime and maximum bank lending rates moderated by 0.29 and
1.67 percentage points to 19.20 and 19.90 per cent, respectively.
Moreover, the weighted average inter-bank call money rate fell from 12.26
per cent in January 2004 to 10.85 per cent, reflecting the surfeit of funds
in the market, relative to the demand.

Although inflation data for January and February 2004 were not
available, preliminary indicators showed that the risk of further increase in
domestic price level was marginal. Encouraged by that, coupled with the
contraction in the broad money supply since the beginning of 2004, the
Committee observed that the prospects of bringing the rate of inflation
down was high if fiscal prudence was sustained. Meanwhile, the
Committee decided to continue monitoring developments in the economy
with a view to fine-tuning the existing policies, if necessary.

Mr. James K. A. Olekah
Secretary
Monetary Policy Committee
Central Bank of Nigeria
Abuja

10th March, 2004