Mixed Reactions Trail JP Morgan’s Threat On Nigerian Bonds

Some financial experts on Wednesday in Lagos expressed mixed reactions on JP Morgan’s decision to phase out Nigeria from its Government Bond Index for Emerging Markets (GBI-EM) by the end of September.

They expressed their views on the JP Morgan GBI-EM indices, which are comprehensive emerging market debt benchmarks that track local currency bonds issued by governments.

According to the rating agency, Nigeria has failed its liquidity and transparency tests and has not offered a fully functional two-way Foreign Exchange (FX) market.

The Director-General of the Lagos Chambers of Commerce and Industry (LCCI), Muda Yusuf said that the naira exchange rate should be allowed to reflect the fundamentals of the FX market.

Yusuf said that a rate which market fundamentals could not support would not be sustainable.

He suggested the adoption of a market approach with a periodic intervention by the CBN as the capacity permits.

The LCCI boss urged the CBN to put in place policies that would encourage inflow of forex without necessarily creating a tolerance for money laundering.

However, the Head of Research at Sterling Capital Ltd., Sewa Wusu, said that phasing out Nigeria from the JP Morgan bond index would have downside implications for Nigeria, particularly the foreign exchange market.

Wusu said that the announcement could propel a massive sell-off of Nigerian instruments by foreign investors who track the bond index from their portfolios.

According to him, there is the likelihood that the current move may have a limited impact in the short term, because many foreign investors have previously liquidated their Nigerian bond holdings.

 

Wusu said that the situation would raise borrowing cost for the country at the international capital markets, and that international confidence on the Nigerian instruments could be weak.

He added that it was high time for Nigeria to look inwards to diversify its economy away from crude oil.

Wusu noted that the CBN had done a lot to curtail the extremes in the foreign exchange market due to round tripping and arbitrage opportunities which led to JP Morgan’s threat.

In his contribution, Dr Chijioke Mgbame of the Department of Accountancy, University of Benin, also noted that the threat could affect activities at the capital market.

 

Mgbame urged that Federal Government to do all in its power to revive the manufacturing sector, and stimulate the economy for production.

 

The CBN  has said it would continue to take economic decisions that would impact positively in the lives of the citizens, a situation that would be impossible if the Naira is allowed to have a ‘free fall’ against foreign currencies.

It said that in midst of the dwindling oil prices, an order – based two-way market best serves Nigeria’s interest at the moment.

Meanwhile, the Naira according to the CBN, closed at N197 to a dollar at the Interbank Foreign Exchange Market on Wednesday.

NAN reports that the currency had continued to exchange for between N195 and N197 to the dollar for quite a while. (NAN)

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