CBN Clarifies Position on Naira Defense and Foreign Reserves
By Patience Ikpeme
The Central Bank of Nigeria (CBN), has debunked claims that it is utilizing the nation’s Foreign Reserves to defend the Naira.
CBN Governor Mr Yemi Cardoso made this known at the ongoing Spring Meetings of the IMF and World Bank in Washington DC. He articulated the CBN’s commitment to fostering a foreign exchange market governed by the principle of willing buyers and sellers.
Mr. Cardoso highlighted the nuanced approach of the CBN, stating, “Defending the Naira, from every indication, is an elephant in some rooms. It is not our intention to defend the Naira.”
He said that the Naira should perform independently in a lively forex market, clarifying that recent reductions in reserves were not intended to defend the Naira.
The Governor elaborated on the rationale behind reserve utilization, stating, “The shift you see in our reserves 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.”
Regarding the cooperation between the CBN and fiscal authorities, Mr. Cardoso said, “Ways and Means is no longer an issue.” He emphasized the necessity of aligning monetary policy with fiscal measures, particularly in addressing issues like food inflation.
In a strategic move to bolster confidence in the Nigerian currency, Mr. Cardoso emphasized a shift towards orthodox central banking practices. This included a decisive increase in interest rates, amounting to a 600 basis points hike within a short timeframe.
The Governor acknowledged the need for enhanced communication with stakeholders, stating, “We want Nigerians to be realistic in their expectations. We have used the MPC to explain why we take the measures that we have taken.”
He expressed satisfaction with the outcomes of the tough decisions, highlighting a remarkable turnaround in the Naira’s performance within months.
Reflecting on the challenges faced, Mr. Cardoso stressed the importance of trust in policymaking. “Irrespective of boldness to do certain things, if the trust is not there, you will sub-optimise,” he remarked, noting the complexities of public expectations regarding the CBN’s role.
In conclusion, the Governor reiterated the CBN’s commitment to moderating inflation while navigating the complexities of monetary policy in partnership with fiscal authorities. The message underscored a pragmatic approach towards currency management and the importance of transparent communication in achieving economic stability.
