CBN Governor Cardoso finally explains why naira is rising but reserve is falling

Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN) has said that the apex bank is not using Nigeria's foreign reserves to protect the naira.

He spoke 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).

Legit.ng earlier reported that recent Bloomberg findings have shown that Nigeria is depleting its foreign exchange reserves at a rate not witnessed in the last four years.

This has sparked worries that the central bank is reducing the amount of dollars it owns to maintain the naira.

During the ongoing spring meetings of the World Bank and the IMF, Cardoso stated that his team at the top bank is committed to fostering a foreign currency market that operates based on willing sellers and willing buyers.

Additionally, he stated that 'Ways and Means' (federal government borrowing from CBN) is no longer problematic, especially since the fiscal authorities securitized the outstanding debt.

He said: “Defending the Naira, from every indication, is an elephant in some rooms. I will make this as straightforward 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, travel and the like."

The Governor of the CBN clarified that Nigeria's reserve is being used for other purposes, such as paying due bills, rather than to defend the naira.

According to a Vanguard report, Cardoso added that Ways and Means is no longer a problem and that his team is collaborating with the fiscal authorities.

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 head of CBN claimed that to increase trust in the value of the Nigerian Naira, he chose to follow the traditional central banking path.

Additionally, he stated that raising the monetary policy rate—which saw a 600 basis point increase quickly—was his only option. He committed to increasing communication with Nigerians and other relevant parties to temper their expectations.

While acknowledging that he made difficult choices, the governor said they are producing the intended results.

According to him, the naira was deemed the worst-performing currency in the world after two months of his administration, but after six months, it rose to the top spot. He added: Ultimately the objective is to ensure that we moderate inflation’’