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External Reserves: Cardoso says CBN not defending Naira

The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso has addressed concerns over the declining external reserves, maintaining that the decline is not because the apex bank is defending naira.

Cardoso, further clarified that the decreasing foreign exchange (FX) reserves were primarily due to debt repayments and other standard financial obligations, rather than efforts to defend the naira. .

He also stated that there were no future intentions to defend the currency with the external reserves, as it was counterintuitive since the apex bank was already implementing a willing buyer, willing seller policy.

Governor Cardoso explained that the significant reduction in Nigeria’s external reserves is largely influenced by the country’s need to fulfil its debt obligations.

This financial activity is a routine practice essential for maintaining national credibility in the global financial arena. 

The CBN boss noted: 

Nigeria faces significant external debt service requirements, including payments on Eurobonds and other international financial obligations. The repayments of these debts require substantial amounts of foreign currency, further draining the reserves.

While there is yet to be fresh data for Q1 2024 on Nigeria’s external debt servicing, Nigeria spent about 50% of its dollar payments to service external debts between January and October 2023, a significant portion underscoring the growing burden of foreign debt on the nation’s economy.

Also, Nigeria’s expenditure on external debt servicing soared to $560 million in January 2024, marking a 339% hike compared to the previous year’s $112 million.  

Reaffirming the central bank’s commitment to a market-driven approach, the Governor highlighted that the CBN advocates for currency prices to be determined by willing buyers and sellers, without direct intervention from the bank.

This policy aligns with the bank’s broader philosophy of minimal interference. 

Cardoso said: 

Cardoso also touched on the initial interventions in the bureau de change (BDC) segment, describing them as minimal and targeted to ensure its effective integration into the broader market.

Looking ahead, he expressed a vision where the central bank would rarely need to intervene in the currency market, except in very unusual circumstances. 

He said: 

So far, the CBN has made three dollar sales to BDC, starting with selling $20,000 to each BDCS at the rate of N1,301/$.

So far, the CBN has made three dollar sales to BDC, starting with selling $20,000 to each BDCS at the rate of N1,301/$.

By the second attempt, the bank reduced the allocation by 50% and sold FX at a rate of N1,251/$1. It recently had a sale of $10,000 to each BDC at a rate of N1,101/$1. 

Additionally, Cardoso disclosed that the reserve account had seen an influx of approximately $600 million over the past two days, emphasizing that these movements were routine and not aimed at defending the naira.