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Cardoso: CBN Has No Intention of Intervening in Forex Market, Committed To Market-Driven Rates

CBN Governor Cardoso says liquidity is returning to Nigeria’s FX market, signalling growing confidence and activity in the Nigerian economy..

The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, on Wednesday, reiterated the apex bank’s stance of not intervening in the foreign exchange (FX) market, insisting that the regulator remains firm in its commitment to fostering a market-driven exchange rate system.

The CBN Governor said this during an interactive session at the ongoing hybrid IMF/World Bank Spring meetings in Washington with the theme: “The Governor Talks,” that was titled: “Nigeria: Catalysing Change: Reforming Monetary Policy in Nigeria”

Cardoso, pointed out that liquidity was returning to the FX market, signalling growing confidence and activity in the Nigerian economy.

Regarding fluctuations in the country’s external reserves which had been a source of concern to some analysts in recent times, the CBN governor noted that it was a typical occurrence, pointing out that Nigeria, like other nations, fulfils its obligations to creditors, which was expected to have effects on its reserves.

Additionally, Cardoso, pointed out that the country received an inflow of $600 million over the past two days, which he stressed was indicative of a positive trend. Hence, there was no need for concern.

Responding to an Arise News Channel question on intervening in the FX market, Cardoso said: “Defending the naira, which from every indication seems to be an elephant in some room. Now, I want to try to make this as clear as possible.

“It is not our intention to defend the naira. And much as I have read in the recent few days, some opinions with respect to what is happening with our reserves, and the central bank defending the naira.

“If you think back to what overall policy and philosophy has been here, you can see it’s counterintuitive. Basically, what we are encouraging is for the markets to willing-buyer, willing-seller, price discovery. And ultimately I perceive a future where the central bank will really not need to intervene except, in very unusual circumstances.

“What is important to us is that there is sufficient liquidity in the market which I’ve spoken about here today. $1 billion is out now, sometimes it is $600, $700 million as the case may be, and that will continue. So as long as we have a vibrant currency market, why do we need to go in there to intervene, we don’t need to.”

Speaking further, Cardoso said: “I can understand that especially at the outset, there have been little cases where the Bureau de Change (BDCs), there was a need to get that segment going. And small amounts of money, relatively tiny amounts of money have gone into that to catalyse that happening because it’s important that again, individuals have access to funds to send their kids abroad and do things which are important like health, etc.

“So it’s important not to keep them out of the mainstream. But in terms of intervention, frankly, that’s not my intention at all to intervene in the market.”

Responding to concerns over the drop in the country’s external reserves, he said: “And what you have seen with respect to the shifts in our reserves, is a shift that you will find in any country’s reserves situation, where for example, debts are due and certain payments need to be made, they are made because that is also part of keeping your credibility intact.

“And other times money comes in. And you know, it takes the reserves up again, and if you watch in the next couple of days, which I think between yesterday (Tuesday) and today (Wednesday) we had about $600 million that came into the reserves account.”

He emphasised that there’s no need for undue excitement, saying, “our focus remains on fostering a market that operates independently, driven by willing buyers and sellers and facilitating price discovery.

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

Further speaking on the exchange rate, he said recent developments in Nigeria’s exchange rate offered hope.

He added that daily liquidity in the foreign exchange market has surged from about $200 to $300 million it used to be to $1 billion, underscoring the growing importance of FX liquidity in monetary activities.

He said: “I do think that what we’ve seen recently with regards to the exchange rate helps to give people hope, in the sense that when I started, we had a situation where within about a month or two we were regarded as having the worst performing currency of any country.

“Six months later, we are judged to have the best performing currency. So, I think those things speak for themselves.

In a situation where in the recent past, the greatest amount of liquidity on a daily basis was in the region of $200 million to $300million to a situation where over the course of the past six months, we have traded up to $1 billion.

“So the FX liquidity has certainly taken the centre stage in activities of the of monetary side and I think people see the exchange rate coming down.

“We continue to talk about the fact that in the pass-through, there’s a lag, but ultimately the objective is to ensure we can operate efficiently.”

Responding to a question on if there was lingering currency risk in the country, Cardoso noted that, it was indeed a concern.

However, he noted that issues needed to be addressed in a structured manner, saying that as policies unfold over time, people would “gain clarity on our direction in managing currency risk.”

He explained: “Currency risk, the answer to that is yes. But again, these things need to be sequenced. So, in due course, as and when those policies come out I think people will know exactly where we are headed in that direction, but it’s certainly something that we are looking at.”

Commenting on how the federal government’s bold policy reforms, he said: “I think it’s a combination of both the fiscal side and on the leadership on political leadership, I think there is a pretty strong understanding of what needs to be done to get Nigeria out of a pretty difficult situation.

“I also believe that seeing the massive swings, we saw where the naira was almost falling off the cliff really didn’t need a minimum confidence and conviction to be able to say, look a certain way or manner of doing things with fixed exchange rate didn’t work and we just needed to be bold enough to try something different.

“And I think that helped in many ways. At the same time, I must say it was not easy, because in a situation like that, people are extremely impatient and many don’t believe that the path you are taking will get you there. But I think we were resolute enough. We were prepared to make the hard decisions quickly enough. That is the difference.”

Meanwhile, the appreciated on the official FX window on Wednesday, even as it depreciated on the parallel market

Specifically, on the official Nigerian Autonomous Foreign Exchange (NAFEM) window on Wednesday, the naira closed at N1,148.14 to a dollar, which was a N75.4 gain compared to N1,148.14/$1 it closed on Tuesday.

On the other hand, on the parallel market, the naira depreciated to N1,100/$1 yesterday, compared with the N1000/$1 it exchanged on Tuesday, indicating N100 loss.

The daily turnover on the official NAFE saw a decrease of 29.6 per cent reaching $189.12 million on Wednesday, compared to the $268.75 million recorded on Tuesday.

Furthermore, the highest spot rate observed yesterday stood at N1,220, with the lowest spot rate recorded at N981.04

Nume Ekeghe and Funke Olaode

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