Published On: Thu, Sep 10th, 2015

CBN blamed for delisting of government bonds

Afdb indexesLAGOS, (CAJ News) – AN international economic think-tank blamed the Central Bank of Nigeria’s contentious handling of the foreign exchange(FX) market led to JP Morgan to phase out Federal Government of Nigeria (FGN) Bonds from its Government Bond Index for Emerging Markets (GBI-EM).

The American multinational banking and financial services holding companywill phase these out at the end of October.Rand Merchant Bank (RMB) Global Markets decried the “absence of a fullyfunctional two-way FX market” and “insufficient transparency” in themarket.It said it had long held that the administrative measures undertaken bythe CBN to counter FX volatility would impact its status within the globalbenchmark.

“Despite being granted a reprieve by the global financier in June, the CBNheld its line claiming that restrictive measures — disallowing investorsfrom replicating Nigeria’s position in the index — were enacted to curbspeculative activity and help stabilise the naira,” RMB argued.

The financial think-tank said however, a reduction in the volume of dailytransactions, coupled with a backlog in US dollar demand accentuated J.P.Morgan’s concerns.RMB said the the upshot of the index review is that foreign holdings ofdomestic debt were likely to contract as investors mandated to track theEM benchmark alter their portfolio allocations.

“The effect on interbank liquidity could be negligible,” stated thethink-tank.“Any attendant currency weakness will likely be masked by CBN interventionin the spot market.”RMB said changes in perception and general liquidity conditions should bemore clearly reflected in movements in the parallel market rate as well asnon-deliverable forward prices.

– CAJ News

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