CBN MPC Communique No. 36 - June 2004
Central bank: cbn | Type: statement | Date: 2004-06-30

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 N 74.5
billion of public sector funds lo dged with deposit money banks,
with effect from July 21, 2004.
2. The policy action, which repr esents a tightening of monetary
policy stance, is designed to st em the continued high demand
pressure in the foreign exchange market, and acceleration of the
inflation rate.
3. Available information on pric e 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, wh ile the level of gross official
external reserves recorded onl y 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 apprec iated marginally in the Dutch
Auction System (DAS) segment of the market, due to increased
supply of foreign exchange by the CB N. 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, em phasized the need for proactive
monetary policy actions to ensure the sustenance of this positive
development, recogniz ing the potential risk to macroeconomic
stability posed by anticipated bu nched government spending on
capital projects during th e second half of this ye ar. In this regard,
the phased recall of public s ector 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.
nd July, 2004