Nigeria’s Foreign Reserves Rise by 12.74%: A Promising Outlook for Economic Stability
In a significant development for Nigeria’s economy, Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), recently announced a 12.74% increase in the nation’s foreign reserves, which now stand at $39.12 billion as of October 11, 2024. This marks a substantial improvement from the $34.70 billion recorded at the end of June 2024. Speaking before the House of Representatives Committee on Banking Regulation, Cardoso highlighted the robust growth in the reserves, emphasising its importance in bolstering the country’s financial stability.
A Positive Shift in Foreign Reserves
The sharp increase in Nigeria’s foreign reserves reflects a welcome rebound from earlier lows. Data from the CBN showed that the reserves had dropped to $32.29 billion in mid-April 2024, the lowest level in over six years. This recovery is attributed to a combination of factors, including foreign capital inflows, increased crude oil-related revenues, and improved remittance flows, which currently account for 9.4% of total external reserves.
Cardoso explained that this rise in reserves is significant for Nigeria’s economic outlook. “The reserves rose by 12.74% to $39.12 billion as of October 11, 2024, from $34.70 billion at the end of June,” he noted. The current reserves position is now sufficient to finance over 12 months of imports for goods and services, or 15 months for goods alone, far surpassing the international benchmark of 30 months. This strong buffer, according to Cardoso, provides the country with considerable protection against external shocks.
Foreign Exchange Reforms and Market Stability
Cardoso also discussed recent reforms in Nigeria’s foreign exchange market aimed at fostering transparency and stability. A key element of these reforms was the unification of the various exchange rate windows into a single model, using a “willing buyer, willing seller” approach. This move, he explained, was designed to enhance liquidity and reduce market distortions.
To further stabilise the foreign exchange market, the CBN has implemented new operational guidelines, including the removal of the quote cap for International Money Transfer Operators (IMTOs). Additionally, the CBN resumed sales of foreign exchange at both the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the Bureau de Change (BDC) segments. This was bolstered by increased inflows from foreign portfolio investors, helping to stabilise the market.
As a result, the gap between exchange rates in the NAFEM and BDC segments has narrowed, bringing rates closer together. Cardoso emphasised that these reforms have reduced opportunities for arbitrage and speculative activities, while also boosting confidence in the foreign exchange market. This increased transparency, he said, has attracted more capital inflows and enabled the CBN to clear a backlog of outstanding foreign exchange obligations, improving Nigeria’s credibility in global financial markets.
Increased Foreign Investment and Economic Confidence
One of the major outcomes of these policy measures has been a significant rise in foreign investment. Between January and July 2024, capital importation increased by 65.56%, reaching $6.49 billion, compared to $3.92 billion in the same period of 2023. Cardoso highlighted that this increase reflects the improved investor confidence in Nigeria, which has been driven by the country’s economic reforms and the enhanced liquidity of the foreign exchange market.
These actions have also contributed to the overall stability of the Nigerian financial system, laying a solid foundation for continued economic growth. However, Cardoso acknowledged that inflation remains a pressing concern. Despite recent declines in July and August, the inflation rate climbed to 32.7% in September 2024, according to the National Bureau of Statistics (NBS). Nevertheless, the CBN governor expressed optimism that inflationary pressures will ease in the last quarter of the year.
Combatting Inflation with Targeted Monetary Policies
To address the issue of inflation, the CBN has adopted a more traditional approach to monetary policy. Cardoso explained that the bank raised its policy rate by 850 basis points to 27.25% and increased cash reserve ratios, while also normalising open market operations as part of its liquidity management strategy. Additionally, the CBN has introduced an inflation-targeting (IT) monetary policy framework, which is widely recognised for its effectiveness in managing persistent inflation.
These measures, he said, are part of the CBN’s broader enterprise strategy for 2024-2028, aimed at stabilising prices and creating a more effective monetary policy framework. The IT framework, adopted by many countries around the world, is expected to help moderate inflation and stabilise the Nigerian economy in the long term.
Conclusion
Under the leadership of Olayemi Cardoso, the Central Bank of Nigeria is making significant strides in strengthening the nation’s foreign reserves and enhancing the stability of its financial system. With foreign reserves now at $39.12 billion, the country is well-positioned to weather external shocks, while the CBN’s reforms in the foreign exchange market have boosted investor confidence and attracted increased foreign investment.
While inflation remains a concern, the CBN’s comprehensive monetary policy measures and the adoption of the inflation-targeting framework offer hope for a more stable economic future. As Nigeria continues to implement these reforms, the outlook for its financial system and broader economy appears increasingly positive.
Source: thecable
