JP Morgan and FG’s Bonds

230513F1.Godwin-EmefieleThe Central Bank of Nigeria (CBN) has assured stakeholders in the economy not to panic in the wake of JP Morgan’s delisting of Federal Government (FG) bonds as the banking system in the country is sound and liquid.

It also said that it will continue to ensure that all legitimate demands for foreign exchange (forex) are met. Responding to that expressed intention of the USA bank, the apex bank pledged not to devalue the Naira any further as it would hurt the majority of Nigerians because, according to it, the exchange rate is relatively stable.

The CBN maintained that the market for FG’s bonds remains strong and active due, primarily, to the strength and diversity of the domestic investor base just as the banking system is strong, liquid and capable of withstanding price changes in the secondary market for government’s bonds. We share the CBN’s optimism that the development is an opportunity for Nigeria to leverage on the current political goodwill and the attendant confidence of many foreign portfolio investors.

The CBN affirmed that it will sustain the commitment to support forex market to ensure relative price stability and guarantee the quality of life of majority of Nigerians whose incomes are inflexible and are more vulnerable to adverse price changes in the system.

It promised to apply its oversight functions and supervision on the banking system for risk factor identification and mitigation and added that the banks’ sound and liquid capital adequacy ratio of about 17 per cent average is sufficient to withstand the attendant negative effects.

Besides, it posited that the revival of the refineries and the policy restricting 41 items from accessing forex are sure to save expenses currently incurred on the importation of petroleum product and stimulate appetite for domestic produce.

We are compelled to agree with CBN that the reduction in ATM withdrawals from $150,000 to $50,000 per annum, and $300 cash withdrawal per day coupled with an effective implementation of the Treasury Single Account (TSA) will reduce corruption and engender fiscal discipline, prudence and also help to limit the outflow of forex.

Without doubt, listing Nigeria’s bonds on JP Morgan has its advantages which include the visibility of the Nigerian financial markets in the international community; accessing and raising international capital at a relatively low cost; attracting foreign portfolio investors and the accompanying capital flows that will increase United States’ dollar liquidity as well as stable and low forex rate.

However, in our opinion, even if there was to be a complete sell-off of the portfolio of foreign investors, the local market would conveniently absorb the sales, considering the trend of demand for the instrument at the primary and secondary market.

Therefore, we think that a capitulation to the expectation of further devaluation of the Naira would give credibility to the prophecy of JP Morgan, when in fact, various measures taken by the CBN are beginning to have effect on the stability of the forex rate. -Leadership

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