Mr. Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), has recently clarified the bank’s position regarding the defense of the Naira, stating that the nation’s foreign reserves are not being utilized for this purpose.
The clarification comes in light of the noticeable decline in Nigeria’s foreign reserves, which has coincided with a significant appreciation of the Naira in the foreign exchange market.
This has led to speculations that the CBN might be injecting foreign exchange to mitigate demand pressures and bolster the local currency’s value.
During his address at the ongoing Spring Meetings of the International Monetary Fund (IMF) and the World Bank, Governor Cardoso emphasized the CBN’s commitment to fostering a foreign exchange market governed by the dynamics of willing buyers and sellers.
He further addressed the topic of Ways and Means, the federal government’s borrowing from the CBN, indicating that it is no longer a concern following the securitization of the outstanding amounts.
Governor Cardoso expressed, “The notion of defending the Naira is a significant topic of discussion. To be unequivocal, it is not our goal to defend the Naira. Despite recent commentary on the depletion of our reserves and the CBN’s actions, our philosophy and policy suggest that such a move would be counterproductive. Our aim is for the Naira to operate autonomously within a robust forex market.”
He also touched upon the reasons behind the shift in reserves, explaining that it was related to fulfilling due obligations, which is the primary purpose of maintaining foreign reserves.
The CBN Governor highlighted the importance of collaboration with fiscal authorities and reiterated that the issue of Ways and Means has been effectively addressed.
“With monetary policy being just one aspect of the broader economic framework, it is imperative for us to work in tandem with fiscal authorities. For example, food inflation falls outside the CBN’s direct influence. Consequently, Ways and Means has become a lesser concern,” he stated.
In an effort to instill confidence in the Nigerian currency, Governor Cardoso mentioned the decision to adopt orthodox central banking practices, which included raising the monetary policy rate by 600 basis points in a relatively short timeframe.
He committed to enhancing communication with Nigerians and stakeholders to align their expectations with the bank’s policies and actions.
“We urge Nigerians to have realistic expectations. Through the Monetary Policy Committee (MPC), we have elucidated the rationale behind our decisions. We plan to fortify our communication strategies across various platforms,” Governor Cardoso conveyed.
He expressed contentment with the tough decisions made during his tenure, noting their positive impact. Within two months, the Naira transitioned from being labeled the worst performing currency to achieving the status of the best performing currency globally.
“The ultimate goal is to moderate inflation,” he affirmed.
Governor Cardoso concluded by underscoring the critical role of trust in the effectiveness of the CBN’s measures, remarking, “The significance of trust cannot be overstated. Without it, even the boldest actions may not reach their full potential. It’s somewhat surprising that there’s been a lack of understanding regarding certain issues, leading to misplaced expectations of the CBN.”
