CBN MPC Communique No. 55 - April 2008
Central bank: cbn | Type: statement | Date: 2008-04-01

Central Bank of Nigeria’s Communiqué No 55 of the Monetary Policy Committee, April
1, 2008
The Monetary Policy Committee of the CBN met on 1st April 2008 and decided to raise
the MPR by 50 basis points
1. The Monetary Po licy Comm ittee (MPC) m et on 1 st April, 2008. The Comm ittee
discussed the international econom ic and financial situation along w ith a detailed review
of the domestic macroeconomic developments including the implementation of the fiscal,
monetary and exchange rate policies in the first quarter of 2008 and the outlook for the
next two quarters. It considered the im plications of the credit conditions in the global
financial markets, the recent policy initiatives of the fiscal and monetary authorities in the
major industrial countries, and the likely sp ill-over effects of th e expected econom ic
downturn in the world’s largest economy, for the Nigerian economy.
2. The MPC noted that while the dom estic macroeconomic environment was generally
stable in the first three m onths of 2008, there are m any uncertainties. The Committee
observed that the current rate of inflation is a matter of concern. It expressed satisfaction
over th e ov erall s tability in the governm ent securities, money and foreign exchange
markets, the buoyancy of the equity m arket and the accretion to foreign exchange
reserves. It restated its comm itment to sustaining m onetary and price stability through
the pursuit of appropriate monetary and exchange rate policies.
Key Macroeconomic Developments
3. Inflation: The Comm ittee noted that th e year-on-year (headline) inflation rose from
6.6 per cent at end-Decem ber 2007 to 8.6 per c ent in January but fell to 8.0 per cent in
February 2008. The higher levels of the h eadline inflation in January and February
relative to that of December 2007, were mainly attributable to the increase in food prices.
The recent release of grains from the stra tegic grains reserve and the prospects of
favourable weather would, however, help redu ce the risks of price acceleration in the
months ahead. The Comm ittee noted that th e expected huge fiscal injections in the
months ahead and the sustained rise in ass et prices would co nstitute potential downside
risks that need to be addressed by strengthening the current restrictive monetary policy.
4. Exchange Rate: The MPC noted that the naira has apprecia ted in the first quarter of
2008, driven mainly by rising foreign exchange inflows reflecting the continued investor
confidence in the econ omy. The foreign exchange m arket, however, continued to
function in a stable manner.
5. Externa l Reserves: The Comm ittee no ted with satisfaction that the gross official
reserves am ounted to U S$59.70 billion as at March 31, 2008. This level of reserves
would support 38 months of current foreign exchange disbursements.
6. Monetary Aggregates: Broad m oney (M2) at end-December 2007 grew by 30.9 per
cent com pared with 30.5 per cent in the corresponding period of the preced ing year.
Provisional figures indicate that the M2 grew by 20.59 per cent in the first two months of
2008. The growth in M2 was driven m ainly by the increase in foreign assets (net) of the
banking system as well as credit to the private sector.
7. Credit: The Comm ittee noted that cred it to the private sector m aintained an upward
trend during the first quarter of 2008. Credit to the private sector gr ew substantially by
96 per cent in fiscal 2007 and by 8.6 per cent during the first two m onths of 2008 which
on an annualized basis translated to 51.6 pe r cent. The MPC noted, however, that the
Federal Government has continued to be a net creditor to the banking system.
8. Interest Rates: The MPC observed that th e inter-bank call rate rose in January but
moderated in the subsequent two months. Market conditi ons exhibited stability as
evidenced from the data on the volu me and deal s in the inte r-bank market. The spread
between the inter-bank call rate and the tenored NIBOR rates, however, showed that the
counterparty cred it risks continu e to exist. The Comm ittee urged th at money m arket
conditions be continuously monitored for purposes of effective liquidity management.
9. Fiscal Stance: The Committee noted the actual and potential impact on liquidity of the
recent distribution of the Naira equivalent of US $ 2.008 billion exces s crude oil revenue
and the second round distributi on of same amount scheduled for June 2008. In addition,
it noted that the federal budget as proposed contained significant increases in expenditure
which would lead to projected budget deficits in the next two quarters of the year.
The Outlook for the Second and Third Quarters of 2008:
10. The MPC noted that the staff estim ates in dicate that inflation could rem ain within
single-digit through the third quarter of the year if necessary actions are tak en. In this
regard, the Comm ittee em phasized that the rel ease of grains from the strategic grains
reserve together with restrictive monetary policy would be important elements in keeping
inflation under control in the months ahead.
Decisions:
In the light of the uncertainties mentioned above, the Committee decided to:
1. raise the MPR by 50 basis points from 9.5 per cent to 10.0 per cent;
2. issue treasury bills for liquidity management; and
3. Increase the sale of foreign exchange as the need arises.
Professor Chukwuma C. Soludo, CFR
Governor
Abuja
April 01, 2008