Depleted foreign reserves used to settle obligations, not to defend naira – CBN gov



The Governor of the Central Bank of Nigeria (CBN) Mr. Olayemi Cardoso, on Wednesday, said the country’s foreign reserves depleted because funds were used to settle outstanding debt obligations, not because the apex bank is defending the naira.

Cardoso who spoke at the on-going Spring Meetings of the IMF and the World Bank, against the backdrop of the recent decline in Nigeria’s foreign reserves, which has corresponded with rapid appreciation of the Naira in the foreign exchange market, fueling speculations that the apex bank pumped forex into the market to dwarf demand pressure and shore up the value of the local currency, noted that the apex bank is not defending, and will not defend the local currency.

The Naira, which fell to as much as N1,900 to dollar at the open market in early March, rebounded to N1,000/$ in April, making it one the world’s best performing currencies.

But the rebound which began in the middle of March, coincided with 5.6 percent drop in Nigeria’s foreign reserves, to $31.7 percent as at April 12, fuelling speculations that the apex bank was using the reserves to shire up the naira.

However, Cardoso maintained that his team at the apex bank were determined to nurse a foreign exchange market ruled by the principle of willing buyers-willing seller, but justified the use of reserves to settle outstanding debt obligations, stating that it’s what reserves are meant for in the first place.

“The CBN is not defending the naira,” he said, ” We do not intend to defend the Naira, our policy is clear. A free market, with little or no intervention from the CBN.

“Our policy remains a willing buyer and a willing seller. The depletion you noticed in our foreign reserve is due to debt obligations inherited, and we just have to settle these debt obligations. It is part of our responsibilities. Such depletion is what you observe with any foreign reserve anywhere in the world. The foreign reserve will reduce and it will increase as we get more inflows. We just received a 600 million dollar inflow. We don’t need to defend the Naira; it’s not our intention to do so.”

Speaking further, he said, “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 CBN governor also said his team is cooperating with the fiscal authorities, noting hat Ways and Means (federal government borrowings from CBN) is no longer an issue, particularly after the fiscal authorities securitised the outstanding.

“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,” he said.

“For instance, food inflation is not within the purview of the CBN. Ways and Means is now less an issue.”

Cardoso 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 than to raise monetary policy rate, recording 600 basis points 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 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 take-away lessons for him, he said, was that he could not over-emphasise the importance of trust, stating, “Irrespective of boldness to do certain things if the trust is not the there, you will sub-optimise.

“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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