CBN NOT USING FOREIGN RESERVES TO DEFEND NAIRA — CARDOSO
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The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, declared yesterday that the apex bank is not defending the Naira with the nation’s foreign reserves.
Speaking 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), fueling rumors that the central bank had injected forex into the market to counteract demand pressure and support the value of the country’s currency.
Speaking at the on-going Spring Meetings of the IMF and the World Bank, Cardoso said that his team at the apex bank is determined to nurse a foreign exchange market ruled by the principle of willing buyers-willing sellers.
He also said that Ways and Means (federal government borrowings from CBN) is no longer an issue, particularly after the fiscal authorities securitized the outstanding.
His words, “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.
“Initially, we needed to keep the BDCs going. So it is important for people to get forex for school fees, travels and the like.
Why reserves shifted
“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.”
Cardoso also said that his team is cooperating with the fiscal authorities and that, “Ways and Means is no longer an issue.
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 boss said he decided to go the orthodox central banking route in order to build confidence in the Nigerian currency.
He also said that he had no choice but to raise the monetary policy rate, recording a 600 basis point hike within a short period of time.
He promised to communicate more with Nigerians and other stakeholders in order to moderate their expectations.
“We want Nigerians to be realistic in their expectations. We have used the MPC to explain why we took the measures that we have taken.
“We will strengthen the communication framework by using different platforms to communicate.”
The governor expressed satisfaction that he took hard decisions but added that they are yielding desired outcomes.
He said within two months of his administration, the Naira was adjudged the worst performing currency, but within six months, it moved to the best performing currency globally.
“Ultimately, the objective is to ensure that we moderate inflation’’, he stated.
Key takeaway lessons for him, he said, were that he could not over-emphasise the importance of trust, stating, “Irrespective of boldness to do certain things, if the trust is not 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.”
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