Nigeria: CBN Clarifies Stance on Foreign Reserves and Naira Defense

Mr. Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), has clarified that the recent depletion in Nigeria’s foreign reserves was not used to defend the Naira, contrary to widespread speculation. Addressing concerns during the ongoing Spring Meetings of the IMF and the World Bank, Cardoso emphasized that the CBN is fostering a foreign exchange market driven by the principle of willing buyer-willing seller.

Cardoso highlighted that the recent appreciation of the Naira in the forex market had led to assumptions of CBN’s intervention to stabilize the currency. However, he assured that the shift in reserves was primarily due to the settling of maturing obligations, which is a fundamental use of foreign reserves.

“The narrative that we are defending the Naira through our reserves does not align with our current policy or practice. We are committed to maintaining a healthy and autonomous forex market,” said Cardoso.

He further commented on the abolition of Ways and Means advances, a mechanism previously used for federal government borrowings from the CBN, noting that these had been fully securitized in cooperation with fiscal authorities, thus resolving potential fiscal pressures.

In his discussion on monetary strategies, Cardoso stated, “Our approach to monetary policy has been orthodox, aimed at building confidence in the Nigerian currency. This required a significant increase in the monetary policy rate by 600 basis points in a short span, which was a tough but necessary decision.”

The governor also promised enhanced communication strategies to help manage public and investor expectations more effectively. “We are intensifying our efforts to engage with Nigerians and stakeholders through various platforms to ensure there is a realistic expectation and understanding of our monetary policy actions,” he explained.

Cardoso expressed satisfaction with the tough decisions his team had made, noting the shift from the Naira being labeled as the worst performing currency to becoming the best performing globally within his first six months in office.

“Managing inflation effectively remains a priority, and while the road has been challenging, the measures we’ve implemented are starting to bear fruit,” he concluded, highlighting the importance of trust and understanding between the central bank and the populace in achieving economic stability.