CBN rolls out two monetary policies

On Wednesday, the Central Bank of Nigeria (CBN) raised its benchmark interest rate (monetary policy rate) from 8 to 9 per cent, citing rising inflationary pressures.

The MPR is the interest rate at which the banking regulator lends to commercial banks.
CBN left the MPR unchanged in August after cutting it by 2 percentage points last June.
In effect, the CBN is making more money obtainable to the banks, and directing them not to charge extra on their customers.
It also disclosed that the nation’s gross external reserves increased to $47 billion at the end of third quarter – September 2007. 

Briefing newsmen shortly after the Monetary Policy Committee (MPC) meeting in Abuja, Prof. Chukwuma Soludo ,the Governor of the CBN, noted that given the expected fiscal injection and the level of reserve money, which shot up to N928.6 billion as at the end of the third period contrary to the target, there was an excess liquidity to mop up.
Soludo said of other decisions by the MPC: We will continue to deploy increased forex sales for purposes of liquidity management and embark upon active open market operations.

The MPC he added that  the prospects for further increase in liquidity and the potential of further appreciation of the Naira exchange rate, and of inflation in view of the possible substantial fiscal injections in the fourth quarter of the year arising from the supplementary budget at the federal and state levels.
The Committee, thus, restated its commitment to ensuring continued price and exchange rate stability through appropriate monetary policy stance in the rest of the year.

Soludo disclosed that the MPC also noted that the macroeconomic environment in the third quarter of the year has helped to sustain single-digit inflation, relatively stable Naira/dollar exchange rate, and the inter-bank interest rate, which remained within the corridor defined by the Bank’s MPR.

Soludo also said the MPC expressed optimism that year-on-year headline inflation would continue to remain single-digit in the rest of 2007, but at the upper region of the single digit range.
Overall, a combination of stable food prices and a restrictive monetary policy stance is expected to help sustain the headline inflation within single-digit.

Stressing that, Inflation stayed within single-digit in the third quarter of 2007.
The MPC he further explained, noted with satisfaction the decline in year-on-year (headline) inflation from 6.4 per cent in June 2007 to 4.8 per cent in July, 2007 and further down to 4.2 per cent in August, 2007.
Similarly, the MPC he added, noted the slight appreciation in the Naira exchange rate at the Wholesale Dutch Auction System (WDAS) in July through September, 2007. 
Another major decision taken was to increase the sale of financial securities to mitigate the impact of increased fiscal injections on the liquidity in the system.

The membership of the MPC currently includes Soludo as Chairman; Mr. Ernest Ebi, Deputy Governor (Corporate Services); Mr. Tunde Lemo, Deputy Governor (Financial Sector Surveillance) and Dr. Sarah O. Alade, Deputy Governor (Economic Policy). Others include Prof. Sam Olofin, Prof. Akpan H. Ekpo and the Permanent Secretary, Federal Ministry of Finance.