CBN Governor Cardoso Finally Explains Why Naira is Rising But Reserve is Falling
- The CBN governor has clarified that Nigeria's external reserve is not being used to defend the naira
- He said this following concerns that the CBN is using foreign reserves to support the local currency
- He assured that the CBN's 'ways and means' is no longer a problem as the outstanding debt was securitised
Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.
Olayemi Cardoso, the governor of the Central Bank of Nigeria (CBN), has said that the apex bank is not using Nigeria's foreign reserves to protect the naira.
Source: UGC
He spoke in light of the recent drop in Nigeria's foreign reserves and the sharp increase in the value of the naira on the foreign exchange market (forex).
Legit.ng earlier reported that recent Bloomberg findings showed that Nigeria is depleting its foreign exchange reserves at a rate not witnessed in the last four years.
This has sparked worries that the central bank is reducing the amount of dollars it owns to maintain the naira.
Cardoso explains depleting reserve
During the ongoing spring meetings of the World Bank and the IMF, Cardoso stated that his team at the top bank is committed to fostering a foreign currency market that operates based on willing sellers and willing buyers.
Additionally, he stated that 'Ways and Means' (federal government borrowing from CBN) is no longer problematic, especially since the fiscal authorities securitised the outstanding debt.
He said:
“Defending the Naira, from every indication, is an elephant in some rooms. I will make this as straightforward as possible. It is not our intention to defend the Naira.
"Much as I have read in the recent few days some opinions about what has happened in terms of our reserves being drawn down, the CBN Defending the Naira, if you take your mind to our philosophy and policy, you will see it will be counter-intuitive. We want the Naira to perform independently as long as we have a vibrant forex market.
“Initially, we needed to keep the BDCs going. So it is important for people to get forex for school fees, travel and the like."
Why reserves shifted
The governor of the CBN clarified that Nigeria's reserve is being used for other purposes, such as paying due bills, rather than to defend the naira.
According to a Vanguard report, Cardoso added that Ways and Means is no longer a problem and that his team is collaborating with the fiscal authorities.
He said:
“Let me be upfront in saying that the monetary policy is only one side. It is very clear to us that we need to have a very good handshake with the fiscal authorities.
“For instance, food inflation is not within the purview of the CBN. Ways and Means is now less an issue.”
The CBN governor claimed that to increase trust in the value of the Nigerian Naira, he chose to follow the traditional central banking path.
Additionally, he stated that raising the monetary policy rate—which saw a 600 basis point increase quickly—was his only option.
He committed to increasing communication with Nigerians and other relevant parties to temper their expectations.
While acknowledging that he made difficult choices, the governor said they are producing the intended results.
According to him, the naira was deemed the worst-performing currency in the world after two months of his administration, but after six months, it rose to the top spot.
He added:
Ultimately the objective is to ensure that we moderate inflation.
Meanwhile, Financial analysts opined that the onus lies on the monetary and fiscal authorities to put in place friendly policies to aid the management of the fx market.
Charles Abuede, a financial analyst, said,
"If Nigeria can address insecurity and terrorism concerns, oil theft and pipeline vandalism, we can begin to see an increase in our crude oil production to above 2mbpd or even close to 2.5mbpd to aid the increase in fx receipt."
Nigeria's foreign reserves fall to 7-year low
Legit.ng earlier reported that Nigeria's foreign reserves, which give the CBN the firepower to defend the naira, have depleted to the lowest level in seven years.
According to the latest data obtained from CBN's website, Nigeria's foreign reserves stand at $32.61 billion as of Friday, April 12, 2024.
This is the lowest level Nigeria's foreign reserve has touched since September 29, 2017, when it was $32.49 billion.
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Source: Legit.ng
