CBN MPC Communique No. 33 - March 2004
Central bank: cbn | Type: statement | Date: 2004-03-31

PRESS RELEASE
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 deliberatio ns 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 en vironment showed some
improvement, as the monetary aggregates showed further contraction; the
foreign exchange market remained generally stable, with the naira
recording a modest apprecia tion and, the official gr oss external reserves
improved significantly. Moreover, th e level of interest rates showed
further moderations.
A review of monetary develo pments indicated that the broad
measure of money supply (M
2) fell by 2.8 per cent to N 1, 959.5 billion,
compared with the 0.2 per cent decline recorded in the preceding month.
In the corresponding period of 2003, the M 2, however, increased by 1.8
per cent. In additi on, narrow money (M 1) 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 fact or of broad mone y supply during the
month under review was the substantia l fall in bank credit to the domestic
economy, mainly the CBN’s net clai m 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 pressu re on the foreign exchange
market observed in January continued into February, 2004. Thus, total
foreign exchange sales in the Dutc h Auction System (DAS) segment of
the market remained virtually unchang ed 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 culm inated in the app reciation to N135.00 per US
$1.00 in February from N 135.3 in January, 2004. Over the same period,
the naira appreciated even more substantially in the Bureaux De Change
(BDC), rising from N 147.79 to N142.95 per US$1.00. Helped by the
appreciable increase in foreign ex change 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 coul d finance up to 8.1 months of foreign exchange
disbursements.
In February, 2004 activities in t he money market remained generally
calm, as in the preceding month. Actual data on interest rates movement,
as at mid-February 2004, showed th at bank deposits and lending rates
declined generally. The average saving s deposit rate, for example,
declined marginally by 0. 12 percentage point to 3.4 per cent, while the
average prime and maximum bank lend ing 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. En couraged 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 monitori ng developments in the economy
with a view to fine-tuning the existing policies, if necessary.
Mr. James K. A. Olekah
Secretary
Monetary Policy Committee
Abuja
th March, 2004