CBN MPC Communique No. 53 - December 2007
Central bank: cbn | Type: statement | Date: 2007-12-04

CENTRAL BANK OF NIGERIA COMMUNIQUE NO. 53 OF THE MONETARY POLICY
COMMITTEE, DECEMBER 4, 2007
The Monetary Policy Commi ttee of the CBN met on 4 th December 2007 and decided to raise
the MPR by 50 basis points from 9.0 percent to 9.5 per cent.
1) The Monetary Policy Committee (MPC) met on 4 th December, 2007. The Committee
reviewed the major macroeconomic devel opments and the implementation of fiscal,
monetary and exchange rate policies in 2007, as well as the challenges for the first quarter
of 2008. The MPC noted both the global and domestic economic and financial
developments and how they influenced macr oeconomic environment in 2007. The
Committee noted with satisfaction the sustained single –digit inflation throughout the year
and the orderly functioning of the foreign exchange and domestic financial markets.
2) It however, acknowledged the pr essure of appreciation on the naira exchange rate which
arose principally from the sustained high foreign exchange inflows buoyed by the favorable
macroeconomic environment, inve stment climate as well as high rates of return in
domestic financial markets. The Committee re stated its commitment to ensuring continued
price and monetary stability thr ough an appropriate monetary poli cy stance for the rest of
the year.
Key Macroeconomic Developments
3) Inflation: The Committee noted with satisfaction the decline in year- on-year (headline)
inflation from 6.4 per cent in June 2007 to 4.1 per cent in Sept ember, 2007. In October,
however, the year- on- year inflation rose slight ly to 4.6 percent reflecting increases in the
prices of utilities, transport, hotel and tourism and education. Sta ff projections indicate that
the year –on- year headline inflation would move to 6.8 percent in November and further
up to 7.3 per cent by year- end due main ly to year end demand pressures. This is
expected to moderate in the first quarter of 2008.
4) Exchange Rate: The MPC noted the steady apprecia tion in the Naira exchange rate,
particularly in the second hal f of 2007. The effective Nair a exchange rate at the wDAS
appreciated from N127.43/US$1 in June to N1 24.28/US$1 in Septem ber and further to
N120.63 /US$1 in November 2007. Relative to the end-De cember 2006, the Naira has
thus far appreciated by about 7.0 per cent. The Committee noted the rising private foreign
exchange inflows and the increased demand for the Naira as key factors which contributed
to the Naira appreciation.
5) External Reserves: The Committee observed that the gross official reserve has
increased to about US$50 billion in Novem ber, 2007. This represented an increase of
18.06 per cent when compared with the leve l of US$42.42 billion in the corresponding
period of 2006. The level of reserves, t he Committee noted, could support approximately
23 months of current foreign exchange disbursements.
6) Monetary Aggregates: Over the end- December, 2006 level, broad money (M2) grew
by 21.3 and 25.31 percent in September and October, 2007. When annualized the M2
grew by 28.44 and 30.25 percent, respectively in the two months, compared with 33.3 and
39.6 percent, respectively in the corresponding months of 2006. The growth of M2 was
driven by the increase in foreign assets(net) of the banking system as well as the rapid rise
in credit to the private sector since the end of the sec ond quarter . Going by recent, both
M2 and reserve money may be within targets for the year.
7) While the Committee expressed concern about t he rapid growth of M2, it however, noted
with relief that this did not translate to higher inflation during the ye ar, partly on account of
the sharp increase in non-oil output.
8) Credit: The Committee noted that cred it to the private sector maintained an upward trend
in most of 2007. Credit to the private sector as at end-October 2007 relative to the level at
end-December 2006 grew by 72.2 per cent. Staff projections through end-December 2007
indicate that private sector credit would grow by 49.5 per cent over end-2006 level.
9) Interest Rates: The MPC observed that the volatility in the inter- bank short-term rates
continued to ameliorate during the year, as rates fluctuated within the interest rate corridor
up to October when it was reviewed. Although the average inter-bank rate trended slightly
upwards thereafter, it has remained generally below the MPR.
10) Fiscal Stance: The Federal budget for 2008 has projected significant increases in
expenditure on account of build-up of infras tructure, environmental protection and social
safety nets. As these expenditures take time to yield results, there would in the interim
period be an impact on aggregate demand. The private se ctor’s own investments in
partnership with those of the public sector would also have lagged effects on output.
FUTURE OUTLOOK:
The MPC noted that the overall macroeconomic pi cture in 2007 has reflected improved stability;
just as the prospects for the first quarter 2008 appear good. The Bank’s projections show that the
year-on-year (headline) inflation could remain single-digit in the first quarter of 2008, provided CBN
continues to take proactive steps to manage the liquidity surfeit. There remains a strong upside risk
to inflation in the near-term due to expected large capital inflows and significant fiscal injections.
DECISIONS:
In anticipation of the imminent fiscal surge and contin uing capital inflows; and in order to drive core
inflation down to single-digit as well as to sustain headline infl ation along its present path, the
Committee decided to take the following proactive actions:
a) Issue new primary instruments to mop up a si gnificant portion of the anticipated excess
liquidity in the system.
b) Continue with the regular open market operations (OMO)
c) Raise the MPR from 9.0 percent to 9.5 percent - to signal a tightening of monetary policy
stance.
Thank you for your kind attention.
Professor Chukwuma C. Soludo; CFR
Governor,
Central Bank of Nigeria,
Abuja.
December 4, 2007