According to the Central Bank of Nigeria (CBN), the big drop in the country’s foreign exchange reserves was not due to the defence of the Naira. Instead, it was done to partly pay off debts owed to creditors.

Furthermore, the bank said it wanted to stay out of the market as much as possible, hoping to create an environment where costs are set by willing buyers and sellers.

The CBN governor, Olayemi Cardoso, clarified on Wednesday while the International Monetary Fund and World Bank held their Spring Meetings in Washington, D.C., USA following curiosity around the big drop in the country’s foreign exchange reserves—about $2.16bn in just 29 days—even though the government was working hard to keep the naira stable, underlying important it is to let the market decide prices instead of depending too much on the bank to step in.

The CBN website showed that as of April 15, 2024, the foreign exchange stocks had dropped to $32.29bn, a big drop from March 18, 2024, when they were $34.45bn. Also, the funds grew by $1.28bn over 43 days, from February 5, 2024, to March 18, 2024.

The apex had earlier stated that the rise was due to more money being sent back to Nigeria by Nigerians living abroad and more interest from foreign buyers in local assets, such as government debt securities. The top bank also said that the rise was caused by changes in the foreign exchange market and more oil being produced, among other things.

Cardoso maintained that the bank would not get involved in the exchange unless unusual circumstances arose. He also made it clear that the recent small change in reserves had nothing to do with protecting the naira. He said that there will be an increase soon because the country is getting an extra $600 million into its funds.

He said, “I want to make this as clear as possible, it is not in our intention to defend the naira. and as much I have read in the recent few days, some opinions concerning what is happening with our reserves and if the central bank is defending the naira. If you think about what our overall policy and philosophy has been here, you can see it is counterintuitive.

“What we are encouraging is for the market to be a willing-buyer and willing-seller price discovery system, and ultimately I perceive a future where the central bank would not intervene except in very unusual circumstances. What is important to us is that there is sufficient liquidity in the market. We recorded trading of $1bn, sometimes it is $600m or $700m as the case may be and that will continue. So as long as we have a vibrant currency market, why do we need to intervene? There has been little amount given to the Bureau de Change to get that segment going and a small amount of money has gone into that to catalyse because individuals must have access to funds for school fees, health and the rest.”

Foreign currency shortages in the country have been a problem for a long time for the CBN. That governments, commercial banks, merchant banks, other financial institutions (OFIs), or public officials cannot directly or indirectly own Bureaux de Change (BDCs) was ruled in February.

In the last two weeks, investors at the Nairobi Securities Exchange (NSE) have taken profits, which has reduced investor wealth by Ksh127.4 billion ($968.8 million) while bank stocks have been the most affected as their prices have dropped even though the shares are still eligible for final rewards.

By March 27, investors’ wealth on the NSE had reached a one-year high of Ksh1.84 trillion ($14 million). This was due to sharp gains in bank stocks as the lenders finished reporting for the full year that ended in December 2023.

The market capitalization, which is a measure of how wealthy investors are, has now dropped to Ksh1.712 trillion ($13 billion). Analysts say this is because people are taking profits, which has skewed the market by making more shares available than people want to buy. Because of this, share prices have gone down.

Most of the stocks in the banking sector hit multi-month highs at the end of March. Since March 27, their market value has dropped by Ksh44.42 billion, bringing it down to Ksh686.2 billion.

Safaricom’s market value has dropped by Ksh94.2 billion since the end of March, to Ksh679.1 billion. This is after rising in March before the book closed on a Ksh0.55 share interim payment. The telco’s share price dropped from Ksh19.30 on March 27 to Ksh16.95 on Tuesday.

“We have seen increased offers on the trading board, without the offsetting bids, hence the price trend. Broadly, it is about investors weighing the time value of their money, given that they can get higher yields on fixed-income securities,” said Ronnie Chokaa, an analyst at AIB-AXYS Africa.

Together, the rise in prices in March and the strengthening of the shilling against the dollar made it very appealing for foreign buyers to sell their shares. If the shilling is stronger when you leave the market than when you joined it, you get more dollars back on your shares because foreign investors get more dollars per shilling.