Governor Cardoso Of CBN Explains Why Naira Is Increasing And Reserve Is Declining
CBN isn't using its foreign reserves to increase the value of the Naira, as Cardoso explains
The Central Bank of Nigeria's (CBN) governor, Olayemi Cardoso, has spoken out about the country's foreign reserves and the value of the Naira at the IMF World Bank Spring Meetings.
He made it clear that, contrary to recent speculation, the CBN is not using foreign reserves to support the value of the Naira, even if the fall in reserves coincided with a notable increase in the value of the Naira on the foreign exchange market.
Cardoso highlights the CBN's dedication to creating a foreign exchange market based on the ideas of voluntary exchanges between prepared buyers and sellers.
He went on to say that recent budgetary actions, such as the securitization of outstanding CBN borrowings (known as Ways and Means), had successfully allayed earlier worries about this financial arrangement.
He said, “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.”
He clarified that the change in Nigeria's reserves was made to satisfy past-due financial obligations rather than to defend the Naira when questioned about the motivations behind it.
He underlined that keeping foreign reserves demonstrates the core goal of reserve holdings and is necessary for satisfying such commitments.
Cardoso noted that the Ways and Means problem is no longer a top priority and emphasized the cooperative efforts between the CBN and fiscal authorities.
Even while he acknowledged that the CBN's mandate does not directly address problems like food inflation, he underlined the significance of the cooperation between monetary and fiscal policies.
Cardoso sought to restore faith in the Nigerian Naira by pursuing traditional central banking concepts.
In an attempt to provide further context, he clarified that the decision to quickly boost the monetary policy rate by 600 basis points was motivated by necessity rather than choice and represented a calculated effort to resolve monetary stability issues and address economic concerns.
The governor, he continued, underlined the importance of setting reasonable expectations, promised better communication with Nigerians and stakeholders, acknowledged the MPC's efforts to make policy decisions clear, and highlighted the benefits of taking harsh action.
Nevertheless after some initial difficulties, the Naira performed much better in a matter of months.
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