Posted by By Bukky Olajide on
IN line with the Federal Government's directives, the Central Bank of Nigeria (CBN) will next week begin withdrawal of N74.5 billion public sector funds from the banks.
IN line with the Federal Government's directives, the Central Bank of Nigeria (CBN) will next week begin withdrawal of N74.5 billion public sector funds from the banks.
The Monetary Policy Committee (MPC) specifically asked the apex bank to recall the amount lodged with deposit money banks effective from Wednesday July 21, 2004.
The phased recall of public sector funds with the deposit money banks, the MPC said, would be sustained until the need for re-injection of liquidity arises.
The secretary of the MPC of the CBN, Mr. James Olekah, contained the order in a statement.
Olekah said the policy action, which represents a tightening of monetary policy stance, was designed to stem the continued high demand pressure in the foreign exchange market, and acceleration of the inflation rate.
Already the government has given the banks December 2005 as deadline to increase their minimum capital base to N25 billion.
While reviewing the activities of the month of May, the committee observed that price developments during the period, indicated that the inflation rate, on twelve-month moving average basis, exceeded the 17.5 per cent recorded in April, 2004.
It added that the daily average demand for foreign exchange remained understandably high at $46.03 million and $47.90 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 net inflow.
"Overall, the naira exchange rate depreciated in the Bureau de Change (BDC) market, although the rate appreciated 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 rate," the statement explained.
In the month under review, the statement added that the growth in monetary aggregates remained broadly within the programmed targets, helped mainly by the continued fall in bank credit to the Federal Government.
The committee nevertheless emphasised the need "for proactive monetary policy actions to ensure the sustenance of this positive development, recognising the potential risk to macroeconomic stability posed by anticipated bunched government spending on capital projects during the second half of this year."