The Central Bank of Nigeria (CBN) has decided to pull out N74.5 billion public sector funds from the vaults of banks with effect from Wednesday next week.
This was disclosed in a press statement issued yesterday and signed by the Secretary Monetary Policy Committee of the CBN, Mr James Olekah. According to the statement, “on the recommendation of its monetary policy committee the Central Bank of Nigeria (CBN) has decided to recall N74.5 billion of public sector funds lodged with deposit money banks with effect from July 21st 2004.
The policy action which represents a tightening of monetary policy stance is designed to stem the continued high demand pressure in the foreign exchange market and acceleration of the inflation rate. Available information on price development 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 remains unsustainably high at $46.03 million and $47.9 million in June and May 2004 respectively, while the level of gross official external reserves recorded only a modest increase during the month, despite the substantial rise in the net inflow.
Overall, the Naira exchange rate depreciated in the bureaux -de-change (BDC) market, although the rate appreciation marginally in the Dutch Auction System (DAS) segment of the market, due to increased supply of foreign exchange by the CBN. The effect was reflected in the further widening of the spread between the DAS and the BDC exchange rates.
“In the month under review, the growth in monetary aggregates remained broadly within the programed targets, helped mainly by the continued fall in bank credits to Federal Government.
The committee, nevertheless, emphasized the need for proactive monetary policy actions to ensure the sustenance of this positive developments, recognizing the potential risk to microeconomic stability posed by anticipated bunched government spending on capital projects during the second half of this year.
In this regard, the phased recall of public sector 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 actions to fine -tune the current policy measures.”
