The Central Bank of Nigeria has specified the reasons behind the significant decrease in the country’s foreign exchange reserves. It clarified that the main objective was not solely to support the naira but rather to partially settle debts owed to creditors.
Emphasizing a hands-off approach, the bank expressed its intention to limit its interference in the market, advocating for prices to be determined organically through the interactions of buyers and sellers.
CBN Governor, Olayemi Cardoso, provided this explanation during the ongoing International Monetary Fund/World Bank Spring Meetings in Washington D.C, United States.
Concerns arose among Nigerians due to the notable decline in the nation’s foreign exchange reserves, dropping by about $2.16bn in 29 days despite efforts to stabilize the naira.
Data from the CBN website revealed that as of April 15, 2024, the FX reserves stood at $32.29bn, significantly lower than the $34.45bn recorded on March 18, 2024.
There was a previous 43-day accumulation, where the reserves increased by $1.28bn between February 5 and March 18, 2024.
Cardoso, speaking at the Governor Talks event titled “Catalyzing Change: Reforming Monetary Policy in Nigeria,” reiterated that the recent shift in reserves was unrelated to defending the naira and pledged minimal intervention in the exchange market unless under exceptional circumstances.
He mentioned an expected upward trend in reserves with an additional $600m inflow soon.
Addressing the decline in reserves, Cardoso explained that it was a standard occurrence in countries where debts are due for repayment, reflecting the necessity to uphold credibility.
Noting the increased liquidity in forex, he disclosed that daily transactions reached $1bn within six months of his tenure, surpassing the $200m to $300m monthly average from previous administrations.
Cardoso acknowledged the challenging situation he inherited and the government’s concern about rising inflation, emphasizing the collaborative effort between the central bank and the Ministry of Finance to discontinue the practice of using Ways and Means.