PRESS RELEASE

CENTRAL BANK OF NIGERIA, COMMUNIQUE NO. 36
OF THE MONETARY POLICY COMMITTEE
IN JUNE, 2004


On the recommendation of its Monetary Policy Committee,
the Central Bank of Nigeria (CBN) has decided to recall N74.5
billion of public sector funds lodged with deposit money banks,
with effect from July 21, 2004.

2.
The policy action, which represents a tightening of monetary
policy stance, is designed to stem the continued high demand
pressure in the foreign exchange market, and acceleration of the
inflation rate.

3.
Available information on price developments in May, 2004
indicated that the inflation rate, on twelve-month moving average
basis, exceeded the 17.5 per cent recorded in April, 2004.
Moreover, the daily average demand for foreign exchange
remained unsustainably high at US$46.03 and US$47.90 million in
June and May 2004, respectively, while the level of gross official
external reserves recorded only a modest increase during the
month, despite the substantial rise in net inflow. Overall, the naira
exchange rate depreciated in the Bureaux de Change (BDC)
market, although the rate appreciated marginally in the Dutch
Auction System (DAS) segment of the market, due to increased
supply of foreign exchange by the CBN. The effect was reflected
in the further widening of the spread between the DAS and the
BDC exchange rates.

4.
In the month under review, the growth in monetary
aggregates remained broadly within the programme targets, helped
mainly by the continued fall in bank credit to Federal Government.

The Committee, nevertheless, emphasized the need for proactive
monetary policy actions to ensure the sustenance of this positive
development, recognizing the potential risk to macroeconomic
stability posed by anticipated bunched government spending on
capital projects during the second half of this year. In this regard,
the phased recall of public sector funds with the deposit money
banks will be sustained until the need for re-injection of liquidity
arises. Meanwhile, the Committee will continue to closely monitor
developments in the economy, with a view to taking appropriate
action to fine-tune the current policy measures.


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

2nd July, 2004