Amid speculations and a noticeable shift in Nigeria’s foreign exchange reserves, Mr. Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), made it clear that the bank is not using these reserves to defend the Naira.
His remarks were made during the ongoing Spring Meetings of the IMF and World Bank, according to Vanguard.
Cardoso highlighted the recent massive appreciation of the Naira in the forex market and the corresponding decline in the nation’s foreign reserves, dispelling rumors that the CBN had been intervening heavily in the forex market to support the Naira.
“Defending the Naira, from every indication is an elephant in some rooms. I will make this as clear 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,” he stated.
The Governor also mentioned the transition in monetary strategies, including a significant hike in monetary policy rates by 600 basis points in a brief period, and stressed the bank’s shift towards a market ruled by the principles of willing buyers and willing sellers.
“Initially we needed to keep the BDCs going. So it is important for people to get forex for school fees, travels and the like. The shift you see in our reserve is not to defend the Naira but for things like settling obligations that fell due. Mind you, that is the reason for keeping foreign reserves, in the first place,” he added.
Further elaborating on the CBN’s policy direction, Cardoso addressed the coordination with fiscal authorities and the reduction of reliance on Ways and Means – the process of the federal government borrowing from CBN, which he says is now less of an issue.
“For instance, food inflation is not within the purview of the CBN. Ways and Means is now less an issue,” he noted.
Cardoso also emphasized his commitment to bolstering confidence in the Nigerian currency through orthodox banking methods and improved communication with the public to set realistic expectations for economic measures.
Within six months of these changes, the Naira shifted from being the worst performing currency globally to the best, marking a significant turnaround under his governance.
Concluding his address, Cardoso reflected on the importance of trust in the effectiveness of CBN’s policies, expressing some surprise at the public’s response and expectations.
“Irrespective of boldness to do certain things if the trust is not the there, you will sub-optimize. It is a bit of a surprise that one had expected a greater understanding of a lot of the issues, expectations of the people on the CBN is often misplaced,” he remarked, highlighting the ongoing challenges and the outcomes of recent monetary decisions.
