Cardoso links depleting external reserves to debt repayments

The Central Bank of Nigeria has clarified reasons for the significant decline in the nation’s foreign exchange reserves, asserting that it wasn’t primarily aimed at defending the naira, as commonly believed, but rather to partially repay debts owed to creditors.

The bank further expressed its desire to minimise its involvement in the market, aiming to foster a scenario where prices are determined through the interactions of willing buyers and sellers.

This approach emphasises the importance of allowing market forces to determine prices rather than relying heavily on intervention from the bank.

The CBN Governor, Olayemi Cardoso, gave the explanation on Wednesday during the ongoing International Monetary Fund/World Bank Spring Meetings holding in Washington D.C, United States.

Nigerians had raised concerns over the significant downturn of the country’s foreign exchange reserves, plunging by approximately $2.16bn in 29 days, amidst robust efforts to stabilise the naira.

Data on the movement of foreign reserves obtained from the CBN website showed that as of April 15, 2024, the FX reserves had fallen to $32.29bn, a major decline from $34.45bn recorded on March 18, 2024.

The reserves also witnessed a 43-day surge, accruing by $1.28bn between February 5 and March 18, 2024.

The CBN had earlier attributed the rise to increased remittance payments from Nigerians abroad and heightened interest from foreign investors in local assets, including government debt securities. The apex bank also noted that the increase was due to reforms in the foreign exchange market and an increase in oil production amongst others.

But Cardoso speaking at the Governor Talks event titled, “Catalyzing Change: Reforming Monetary Policy in Nigeria”, in Washington, stated that the bank would refrain from intervening in the exchange unless unusual circumstances arose and stressed that the recent slight shift in reserves was unrelated to defending the naira

According to him, an uptick will be recorded soon as the country receives an additional $600m into the reserves accounts soon.

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