Author Topic: CBN tightens monetary policy as inflation rises  (Read 1109 times)

Offline funshy

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CBN tightens monetary policy as inflation rises
« on: June 03, 2008, 09:31:22 AM »
Central Bank of Nigeria (CBN) yesterday raised the monetary policy rates (MPR) by 25 basis points from 10.0 per cent to 10.25 per cent following inflationary pressures as measured by the movements in the year-on-year consumer price index, which intensified in April from lower 7.8 per cent in March this year and 6.6 per cent in December last year.

The apex bank governor, Professor Chukwuma Soludo, who attributed the inflation rate to the increase of 13.1 per cent in food prices, which have a large weight of 63.76 per cent in the overall index, also noted that the downside risks to inflation would arise if demand pressure is exerted by fiscal injections and private expenditures beyond what the supply can accommodate.

Addressing newsmen at the end of the Monetary Policy Committee (MPC) meeting in Abuja, the governor announced the increase in the CRR by 100 basis points from 3.0 per cent to 4.0 per cent with effect from June 9, this month.

He said that the Monetary Policy Committee (MPC) also set up a technical committee to work out other intervention securities that the apex bank would issue to further strengthen the effectiveness of liquidity management, adding that the MPC even decided to strengthen Open Market Operations (OMO) and special sale of foreign exchange. According to the governor, the monetary policy has to ensure that concerns about price stability and real activity levels are recognised and actions taken to address them.

?In view of the sharp growth of credit to the private sector by 96 per cent and of M2 by per cent on a year-on-year basis by March 2008, and as fiscal expansion is all-time high, threats of resurgence of inflation are very high. In addition, there is the threat of imported inflation owing to global rise in prices,? he said. Soludo also revealed that the external value of the naira is currently at N117.83 per US$1 while the exchange rate has been relatively stable in the first five months of this year. Equally, he said, the gross official reserves amounted to US$59.16 billion as at May 28, 2008.

This amount, for him, would support 27 months of current foreign exchange disbursements. Also, the governor pointed out that the inter-bank call rates rose in April in response to policy and market conditions. ?The rates continued to be relatively stable in May at the elevated level of April. The spread between the average term deposit and the maximum lending rates narrowed by 0.08 percentage point to 7.44 per cent at the end of April 2008 from 7.52 per cent in March,? he said.




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CBN tightens monetary policy as inflation rises
« on: June 03, 2008, 09:31:22 AM »

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