Monetary Policy

The Conduct of Monetary Policy

Over the years, the objectives of monetary policy have remained the attainment of internal and external balance of payments. However, emphasis on techniques/instruments to achieve those objectives have changed over the years. There have been two major phases in the pursuit of monetary policy, namely, before and after 1986. The first phase placed emphasis on direct monetary controls, while the second relies on market mechanisms.

Monetary Policy Performance in 2008 - 2011
The conduct of monetary policy by the Central Bank of Nigeria since 2008 has been designed to: influence the growth of money supply consistent with the required aggregate Gross Domestic Product (GDP) growth rate, ensure financial stability, maintain a stable and competitive exchange rate of the naira, and achieve positive real interest rates.

The conduct of monetary policy in the review period was largely influenced by the global financial crisis which started in 2007 in the U.S. and spread to other regions and emerging markets including Nigeria. The crisis created liquidity crisis in the banking system, large quantum of non-performing credits, large capital outflows and pressure on the exchange rate, decline in oil prices and falling external reserves, sharp drop in government revenue, huge fiscal injections and collapse of the capital market.

Consequently in the wake of the global financial crisis, the Bank largely adopted the policy of monetary easing to address the problem of liquidity shortages in the banking system from September 2008 to September 2010. The monetary policy easing measures taken during the period included:

Stoppage of aggressive liquidity mop-up since September 18, 2008
Progressive reduction of monetary policy rate (MPR) from 10.25 to 6.0 per cent
Reduction of cash reserve requirement (CRR) from 4.0 to 2.0 and 1.0 per cent
Reduction of liquidity ratio (LR) from 40.0 to 30.0, and 25.0 per cent
Introduction of Expanded Discount Window (EDW) to increase DMB’s access to facilities from the CBN, and by July 2009 was replaced with CBN Guarantee of interbank transactions
Reduction of Net Open Position (NOP) limit of deposit money banks from 20.00 to 10.00, 5.00 and 1.00 per cent
Injection of N620 billion as tier 2 capital in 8 troubled banks

Following the restoration of stability and re-emergence of liquidity surfeit in the banking system, the Bank adopted a tightening stance from September 2010 to December 2011. The monetary policy easing measures coupled with huge fiscal expansion put much pressure on inflation, exchange rate and external reserves. To curtail these threats the stance of monetary policy changed from monetary easing to tightening, from September 2010 to December 2011 and the following monetary policy actions were taken during the period:

The Resumption of active Open Market Operations for the purpose of targeted liquidity management
Progressive increase in the monetary policy rate (MPR) from 6.00 to 12.00 per cent
Increase in the Cash Reserve Requirement (CRR) from 1.00 to 2.00, 4.00 and 8.00 per cent
Increase in liquidity ratio (LR) from 25.00 to 30 per cent
Introduction of reserve averaging method of computing Cash Reserve Requirement (CRR), which was later stopped
Increase of Net Foreign Exchange Open Position (NOP) of banks from 1.00 to 5.00 per cent; but later reduced to 3.00 per cent
Shift in the mid-point of the foreign exchange band from N150/US$1 +/-3 per cent to N155/US$1 +/-3 per cent

The above policy actions taken by the CBN were within the statutory mandate of the Bank, and in the overall interest of the Nigerian Economy. The Bank’s monetary policy decisions strengthened financial system stability and supported the growth of the Nigerian economy.

The links below detail the conduct of monetary policy in the following categories.

2007 |
2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | 1996
1995 | 1994 | 1993 | 1992 | 1991 | 1990 | 1989 | 1988 | 1987 | 1986

Read Frequently Asked Questions (FAQs) on Monetary Policy

Facts : 1/1/1900
West African Currency Board:The West African Currency Board was established in 1912 to retain the services of Bank of British West Africa. It set up four centres in Lagos, Accra, Freetown and Barthurst (now Banjul).
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