Cardoso: Nigeria’s shift in Fx reserves due to debt obligation

The Governor of the Central Bank of Nigeria, Olayemi Cardoso, clarified in a recent interview that the recent drop in the country’s foreign exchange reserves is primarily due to debt obligations and not aimed at defending the naira. Cardoso made these remarks during an interactive session with Abebe Aemro Selassie, the International Monetary Fund’s director of the African department, on the side-lines of the ongoing Spring Meetings of the IMF and World Bank in Washington DC. Cardoso reiterated the apex bank's commitment to promoting a free and fair foreign exchange market marked by willing buyer, willing seller, and price discovery mechanisms. He emphasized that the central bank's goal is not to intervene in the market unnecessarily but to ensure sufficient liquidity for the smooth functioning of the currency market. Cardoso elaborated on the central bank's philosophy, stating, 'It is not our intention to defend the naira. It is not. What we're encouraging is for the markets to embrace willing buyer, willing seller, and price discovery. Ultimately, I foresee a future where the central bank will rarely need to intervene, except in very exceptional circumstances.' He highlighted the importance of maintaining liquidity in the market and mentioned that market dynamics usually dictate the need for intervention, with figures ranging from 600 to 700 million US dollars, and sometimes even reaching one billion. The Governor emphasized the significance of ensuring access to funds for essential purposes like education and healthcare, without isolating individuals from mainstream financial activities. Regarding the fluctuation in foreign exchange reserves, Cardoso explained that such variations are common and are largely influenced by debt obligations and incoming monetary inflows. He pointed out that maintaining credibility in international financial markets requires timely payments of debts and other obligations. Cardoso reassured that recent inflows have bolstered the reserves, with approximately 600 million US dollars entering the reserves account in just a couple of days. He urged caution against overreacting to these fluctuations, asserting that the central bank's focus is on fostering an independent market characterized by willing buyer, willing seller transactions, and transparent price discovery mechanisms. In conclusion, Cardoso emphasized that the shifts in Nigeria's foreign exchange reserves are primarily driven by external factors like debt obligations and incoming monetary inflows rather than intentional currency defense measures. He reiterated the central bank's commitment to transitioning towards a market-driven approach that minimizes intervention and promotes a self-regulated foreign exchange market. Cardoso's insights shed light on the central bank's strategic objectives and the rationale behind recent fluctuations in Nigeria's foreign exchange reserves.