Nigeria’s foreign reserves have increased to $39.12 billion, a 12.74% rise from $34.70 billion recorded at the end of June 2024. This was disclosed by the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, during a presentation before the House of Representatives Committee on Banking Regulation.
This rise in foreign reserves, Cardoso explained, was driven by several factors, including foreign capital inflows, receipts from crude oil-related taxes, and contributions from third-party remittances. He stated that Nigeria’s remittance flows now represent 9.4% of the country’s total external reserves, marking a significant source of foreign exchange for the nation.
Cardoso, however, acknowledged that inflation remains a persistent concern for Nigeria, despite signs of “gradual moderation” in recent months. He noted that while the CBN’s monetary policy measures are starting to take effect, much work remains to be done to bring inflation under control.
The rise in Nigeria’s foreign reserves, according to Cardoso, provides a much-needed buffer against external shocks. He highlighted that the current reserves could finance over 12 months of imports of goods and services, or 15 months of goods only. This, he emphasized, is substantially higher than the international benchmark of 30 months.
“This reflects a robust buffer against external shocks,” Cardoso said, adding that Nigeria’s external reserves have “grown significantly” and represent a strong foundation for financial stability.
Cardoso also mentioned improvements in Nigeria’s trade balance and current account surplus in the second quarter of 2024. These factors, he said, have contributed to the rise in reserves and the broader health of the economy.
The CBN governor explained that several foreign exchange (FX) market reforms were responsible for the improved performance of the reserves. One of the key reforms implemented was the unification of various exchange rate windows into a single model, which follows a “willing buyer, willing seller” approach.
“This move was aimed at fostering transparency, reducing market distortions, and enhancing the efficiency of foreign exchange allocations,” Cardoso stated.
In line with these reforms, the CBN also resumed the sale of foreign exchange at both the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the Bureau de Change (BDC) segments. This was supported by an improved supply of foreign exchange from foreign portfolio investors, helping to boost overall FX liquidity.
As a result of these measures, Cardoso said, the CBN has successfully narrowed the disparities between different FX market segments, leading to a convergence of exchange rates. This, he added, has reduced speculative activities and curbed arbitrage, which had previously undermined the stability of Nigeria’s foreign exchange market.
“We have achieved increased transparency in the foreign exchange market, which has restored market confidence and led to increased capital inflows,” Cardoso noted.
Cardoso also pointed to the success of the CBN’s efforts to clear existing foreign exchange backlogs. This, he explained, has been crucial in boosting Nigeria’s credibility in the global financial market.
“The settlement of all legitimate backlogs of outstanding FX obligations by the bank has significantly improved Nigeria’s credibility and ratings across the global financial market,” he said. This has had a positive impact on investor confidence and enhanced the liquidity of the foreign exchange market.
These reforms and increased transparency, according to the CBN governor, have helped to restore confidence in Nigeria’s financial system, which in turn has led to a surge in capital inflows.
Despite the positive news regarding foreign reserves, Cardoso acknowledged that inflation remains a pressing issue for Nigeria. The latest data from the National Bureau of Statistics (NBS) shows that the consumer price index (CPI), which measures the rate of change in prices of goods and services, rose to 32.7% in September 2024. This marked the first increase in three months, after inflation had shown declines in both July and August.
Cardoso admitted that inflation has shown signs of “gradual moderation,” but it continues to be a major concern. The CBN governor pointed out that the monetary policy measures implemented by the central bank were becoming effective, but the fight against inflation would require more sustained efforts.
“We anticipate steady moderation of inflationary pressures in the last quarter of 2024, supported by our monetary policy measures and the federal government’s recent initiatives,” Cardoso stated.
To combat inflation, Cardoso said the CBN has fully reverted to orthodox monetary policy approaches. This has included a series of measures aimed at stabilizing prices and managing liquidity in the economy.
Key among these measures was the raising of the policy interest rate by 850 basis points to 27.25%, a move aimed at curbing inflationary pressures. Additionally, the CBN has increased the cash reserve ratio and normalized open market operations to better manage liquidity.
The central bank has also adopted an inflation-targeting monetary policy framework as part of its long-term strategy for economic stability. This framework, widely used by central banks around the world, is known for its effectiveness in combating persistent inflation.
“The IT framework is renowned for its effectiveness in combating inflation and is a key part of our strategy for the next five years,” Cardoso explained.
