THE Central Bank of Nigeria (CBN) on Wednesday, April 17, said the drop in Nigeria’s foreign exchange reserves was not a result of the apex bank’s defence of the naira.
The CBN Governor, Olayemi Cardoso, said this at the ongoing spring meetings of the International Monetary Fund and World Bank in Washington.
The ICIR reported that Nigeria’s foreign exchange reserves dipped by about $2.16 billion, shrinking to $32.29 billion as of 15 April.
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These developments come amid significant appreciation in the value of the naira against the US dollar in recent weeks.
Economy watchers say the naira’s gains against the US dollar are not unconnected with the dip in Nigeria’s FX reserve since Nigeria is largely an import-dependent economy with weak exports of the non-oil sector.
Notably, the local currency appreciated from a low of about N1,900/$1 earlier in the year to a high of about N1,200/$1, on average, across foreign exchange markets.
Recently, media reports claimed that the Central Bank might be using Nigeria’s foreign reserves to support the naira despite earlier promises to allow the currency to float.
However, Cardoso, while addressing the concerns raised by several media outlets on the interference of FX reserve in the naira’s defence, explained that the movement of the reserves had nothing to do with the recent gains recorded by the Nigerian unit in the forex market, noting that the apex bank had no intention of defending the naira.
“It is not in our intention to defend the naira, and much as I have read in the recent few days, some opinions concerning what is happening with our reserves and the CBN defending the naira.
“If you think back to what our overall policy and philosophy has been here, you can see it’s counterintuitive. The shift you see in the reserve has nothing to do with defending the naira, and that’s certainly not our objective,” he said.
He likened the shift to a common occurrence in any country’s reserve management, adding that such shifts often occur when debts are due or certain payments must be made to maintain the country’s credibility.
He hinted at a future where CBN interventions would be required in highly unusual circumstances.
“Basically what we are encouraging is for the market to have willing buyers and willing sellers for price discovery, and ultimately, I perceive a future where CBN will not need to intervene, except in very, very unusual circumstances,” Cardoso said.
He emphasised the need for a strong currency market, suggesting that CBN intervention might not be needed if there is enough liquidity in the FX market.
In recent times, the CBN has taken several measures to stabilise the FX market, regulate participants’ activities, and increase market transparency.
In March, the bank announced it had cleared all ‘valid’ foreign exchange backlogs, mainly to restore confidence in the Nigerian economy.
The CBN also removed the +/- 2.5 per cent rate on the NAFEX rate for International Money Transfer Organisations (IMTOs) and issued specific guidelines on IMTO services, including minimum capital requirements and prompt repatriation of export proceeds.
It equally directed all banks to stop using foreign currency as collateral for naira loans and reviewed the Cash Reserve Ratio (CRR) framework.
During this period, the local unit has appreciated significantly against the greenback and is rated one of the best-performing currencies worldwide.
The appreciation in the value of the local unit, amounting to 12 per cent against the dollar in April and following a 14 per cent rise in March, is attributed to capital inflows, interest rate hikes, and the CBN’s market reforms.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.