PRESS RELEASE
CENTRAL BANK OF NIGERIA
COMMUNIQUE NO. 35 OF THE MONETARY POLICY
COMMITTEE IN MAY, 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
the summary of the deliberations and decisions of its Monetary Policy
Committee meeting, held in May, 2004. The Committee met once to review
developments in the macroeconomy and financial markets.

2.
In April, 2004, the overall performance of the economy was mixed.
Although the growth in money supply (M2) was broadly on target, the rate of
inflation continued to accelerate. The pressure on the naira, however,
moderated, as the level of gross official external reserves rose. Moreover, the
money market remained relatively calm, with both deposit and lending rates
rising only moderately.

3.
The report from the Federal Office of Statistics (FOS) indicated that in
March, 2004, the inflation rate, on moving average basis, rose to 17.8 per
cent from 16.5 per cent, in the preceding month. The annualized month-onmonth inflation rate was 22.5 per cent, down from 24.8 per cent in the
preceding month. The continued rise in the inflation rate was traced to
developments in the non-food index, largely reflecting the lag-effect of the
deregulation of the down-stream petroleum sector on production cost, as well
as the import prohibition, among other causes.

4.
The rapid growth in the monetary aggregates, which commenced in
February, 2004, moderated slightly in April. In the month under review, the
broad money stock (M2) increased by 1.2 per cent, compared with the 1.7 per
cent growth recorded in the preceding month. The cumulative growth of
broad money over the end-December, 2003 level was 7.0 per cent. Narrow
money (M1) and base money rose only marginally by 0.1 and 0.6 per cent,
respectively. The main expansionary factor of money supply was the rise in
the foreign assets (net) of the banking system, which was moderated by the
substantial fall in bank credit to the domestic economy, especially to
government.

5.
Available data on money market developments indicated a general
increase in bank deposit and lending rates. In the month under review, the
average inter-bank call rate rose by 1.07 percentage points to 15.89 per cent,
over the level in March, 2004. Also, the spread between average savings
deposit and maximum lending rates widened only marginally from 15.42 to
15.45 per cent.

6.
In April, 2004, the demand for foreign exchange was moderately higher
than in the preceding month, with the daily average sales rising to US$34.54
million from US$31.00 million in March, 2004. Arising from the increased
foreign exchange inflow, the naira appreciated in all segments of the foreign
exchange market. At the Dutch Auction System segment, it appreciated to
N133.4714 from N134.4200 per US$1.00, while in the Bureaux de Change,

the naira strengthened from N139.7604 to N138.8523 per US$1.00. The level
of official external reserves rose further to US$10.88 billion, up from
US$10.49 billion at end-March, 2004.

7.
The Committee viewed with serious concern, the escalation in the rate
of inflation and decided to embark on partial withdrawal of public sector funds
with the deposit money banks, as a strategy for mopping up excess liquidity in
the system. The Committee noted that developments in the macroeconomy
will continue to be monitored, with a view to taking further policy action, if the
need arises.


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


31st May, 2004