Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), explained yesterday that the apex bank is not defending the Naira with the nation’s foreign reserves.
He was speaking against the backdrop of the recent decline in Nigeria’s foreign reserves corresponding with massive appreciation of the Naira in the foreign exchange market (forex), fueling speculations that the apex bank pumped forex into the market to dwarf demand pressure and shore up the value of the local currency.
“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.
“The shift you see in our reserve 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,” Cardoso said
At the on-going Spring Meetings of the IMF and the World Bank, the CB Governor said that his team is determined to nurture a foreign exchange market ruled by the principle of willing buyers-willing sellers.
Cardoso also said that 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.
“For instance, food inflation is not within the purview of the CBN. Ways and Means is now less an issue,” the CBN boss further explained.
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 but to raise the monetary policy rate, recording a 600-basis-point 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 judged 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 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 are often misplaced.”
