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The Conduct of Monetary Policy
The Performance of Monetary Policy In 2004
The 2004 Monetary Policy framework remained unchanged as in previous years. The policy measures of targeting monetary aggregates and determination of the exchange rate, through the Dutch Auction System (DAS) were sustained as in previous years. The objective of the 2004 monetary policy was kept at sustaining price stability and non-inflationary growth, as enunciated in the National Economic Empowerment and Development Strategy (NEEDS).
In terms of performance, the Bank outperformed its broad money (M2) growth target by achieving 14.0 percent instead of the target of 15.0 percent and the narrow money (M1) target of 10.8 per cent was also out-performed by 2.2 percent. In addition, aggregate bank credit to the economy increased by 26.6 percent compared with the target of 30.0 percent, while the inflation target of 10.0 percent was achieved. The economy also achieved a commendable GDP growth rate of 6.1 percent against the targeted 5.0 percent and an external reserves level of US $16.96 billion, representing an increase of US$7.69 billion over the previous year. Generally, the effectiveness of monetary policy was enhanced by the prudent fiscal operations of the three tiers of Government, especially the Federal Government. Despite the bank consolidation that commenced in July 2004, banks’ weighted deposit and lending rates generally declined in response to the low public sector demand for bank credit that year. Overall, monetary policy preformed credibly well in 2004 than in previous years.