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The Conduct of Monetary Policy
The Performance of Monetary Policy In 2003
The Monetary policy measures of 2003 were designed to consolidate the gains of 2002 by supporting real sector activities, while keeping liquidity and exchange rate policies market determined. Specifically, the measures were aimed at promoting a stable macroeconomic environment through the achievement of single digit inflation, sustained stability in the exchange rate, financial sector soundness, high external reserves that could support more than six months of imports and a non-inflationary GDP growth of 5 percent. Similarly, the monetary and credit targets for 2003 were set to achieve these objectives.
The overall performance of the economy in 2003 was mixed. Excess liquidity in the system arising from fiscal dominance posed serious challenges to the conduct of monetary policy. Consequently, broad money (M2) grew by 24.1 percent instead of 15.0 percent targeted and narrow money (M1) by 29.5 percent as against the 13.8 percent target for the year. In addition, Bank credit to the domestic economy increased by 29.1 percent compared with the 25.7 percent target, while credit to the Federal Government increased by 58.4 percent as against -150.3 percent targeted for the year. The growth of credit to the private sector was 18.4 percent compared with the target of 32.3 percent and the inflation rate was 23.8 percent instead of the targeted 9.0 percent. Despite the missing of most targets, the GDP growth target of 5 per cent was however exceeded, as the Nigerian economy was grown by 10.2 percent in 2003.