CBN MPC Communique No. 42 - January 2005
Central bank: cbn | Type: statement | Date: 2005-02-04

PRESS RELEASE
CENTRAL BANK OF NIGERIA COMMUNIQUE NO. 42 OF THE MONETARY POLICY
COMMITTEE, IN JANUARY, 2005
The Monetary Policy Comm ittee met for two days, 24th and 25th January, 2005, to
review the macroeconomic perform ance in 2004 and the way fo rward. At the end of the
meeting the MPC expressed general satisf action on the econ omic achievements
recorded in 2004. To sustain the gains of 2004, the Committee agreed to adopt policy
measures that would ensure continued price stability and non inflationary growth.
2. Provisional data showed th at the real GDP grew by about 5.5 per cent. This was
higher than the 5.0 per cent target set under the NEEDS programme for 2004. The year-
on-year inflation rate was 9.5 per cent at end-December 2004, representing a significant
deceleration from the 23.8 per cent recorded at end-De cember 2003. The 12 months
moving average inflation, however, moved from 14.0 per cent at the end of 2003 to 15.0
per cent at end-2004.
3. The good macroeconomic outtu rn was due to the effect ive implementation of an
appropriate mix of monetary and fiscal polices. For the first time in almost two decades,
the CBN met the target on broad money supply (M2). The M2 rose by 15.2 per cent at
the end of 2004 against the ta rget of 15.0 percent under t he NEEDS. Also, following the
prudent fiscal operations of the Federal Government, the fiscal deficit /GDP ratio
improved from the target of 3.0 per cent under NEEDS to about 2.1 (cash basis).
4. The stock of external reserves for the year ended Decem ber 2004 was US$16.9
billion, compared with the ta rget of US$7.68 billion. The naira exchange rate was
N132.85=US$1.00 at end-December 2004, representing a nominal appreciation of about
3.0 per cent when compared with the rate of N137.0 to US $1.00 in January 2004.
5. The Committee, however, noted with concern the amount of the proposed budget
deficit for 2005, the bulk of which would be financed thro ugh the savings from the 2004
windfall crude oil receipts.
6. In order to sustain and improve on th e economic gains whic h were achieved in
2004, the Committee agr eed to adopt the following policy measures in addition to the
open market operations:
⇒ Withdrawal/re-injection of public sect or deposits to address the problem of
excess liquidity in the banking system;
⇒ Reduction of the MRR by 200 basis points, in order to reduce the cost of private
sector borrowing for productive investment;
⇒ Adoption of two weeks maintenance period for the CRR; and
⇒ Adoption of an exchange rate band of pl us/minus 3.0 per cent, to sustain
exchange rate stability, anchor expectations and minimize transaction costs.
The Committee also agreed to review the effectiveness or otherwise of the above
instruments on quarterly basis.
James K. A. Olekah,
Secretary, Monetary Policy Committee,
Central Bank of Nigeria,
Abuja.
2nd February, 2005