Cardoso justifies CBN defence of naira, but says it’s not reason for depletion in fx reserves

In an attempted defence of the decision of the Central Bank of Nigeria, (CBN) to defend the domestic currency, the naira, the governor of the apex bank has distanced the decision from the depletion of the foreign exchange reserve.

Cardoso gave this defence during an interactive session with Abebe Aemro Selassie, the International Monetary Fund’s (IMF) director of the African department on the sideline of the ongoing Spring Meetings of the International Monetary Fund and World Bank in Washington, on Wednesday.

Ripples Nigeria had earlier reported that Nigeria’s Foreign Exchange reserves dipped by over $2bn in less than a month plunging it to its lowest level in six years.

Experts and economists have blamed this declining reserves on the decision of the apex bank to aggressively defend the naira.

Reacting to this, Cardoso disagreed, saying the shift in the reserves had little or nothing to do with the defence of the naira.

“It is not our intention to defend the naira. The shifts you’ve seen in our reserves has really little or nothing to do with defending any naira and that’s certainly not our objective.”

“We are looking toward ensuring that we have a market that operates on its own: Willing buyer. Willing seller. Price discovery,” he said.

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“Ultimately, I perceive a future where the central bank will really not need to intervene except in very, very unusual circumstances. What is important to us is that there’s sufficient liquidity in the market.”

The currency of Africa’s largest oil producer has recovered most of its losses since a 43% devaluation in January. The move follows 600 basis points of monetary tightening in February and March and a raft of other steps by the central bank to improve local dollar liquidity and clear a $7 billion backlog of foreign currency orders.

Rather, Cardoso said the rise in the currency was a sign that the central bank had convinced investors that it was willing to do whatever was necessary to stabilize inflation.

The turnaround in the naira’s fortunes has been a roller-coaster. After years of being pegged at an artificially strong level against the dollar, foreign exchange reforms in June began a decline that at one point had wiped more than 70% from its value against the greenback before it began to rally in mid-March.

“When I started, we had a situation where within a month or two we were regarded as having the worst performing currency of any country,” he said.

“Six months later we are judged to have the best performing currency of any country. I think those things speak for themselves.”

By: Babajide Okeowo

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