The Federal Government, on Tuesday, faulted the decision of New York based lender, JP Morgan, to exclude Nigeria from its local-currency emerging market bond indexes tracked by more than $200 billion of funds, by the end of October.
It will be recalled that JP Morgan had hinged the decision to exclude the country on the steps taken by the Central Bank of Nigeria, CBN, to restrict foreign exchange transactions, insisting that it had prompted investors’ concerns about a shortage of liquidity.
According to JP Morgan’s spokesman, Patrick Burton, the first phase of the exercise, would take place at the end of September, to be followed by a full exit by the end of October.
However, the CBN faulted the decision last night in a statement signed by its Director of Communications, Ibrahim Mu’azu, adding that while it respects the right of the J.P. Morgan to make this decision, it disagrees with the premise and conclusions upon which the decision was made.
In the statement, jointly issued by the Federal Ministry of Finance, the Debt Management Office and the CBN, Mu’azu said Nigeria was included in the index in October 2012, based on the existence of an active domestic market for FGN Bonds supported by a Two-Way Quote System, dedicated Market Makers and diverse investors.
The statement continued that in January 2015, J.P. Morgan placed the country on an Index Watch as a result of its concerns in the operations of the country’s Foreign Exchange (FX) Market, such as lack of liquidity for transactions, lack of transparency in the determination of the exchange rate and lack of a fully functional two-way FX Market.
Mu’azu, listing steps taken by CBN, said despite the fact that oil prices have fallen by nearly 60 percent in one year, which should expectedly reduce the amount of liquidity in the market, the regulator ensured that all genuine and effective demand were met, especially those from foreign investors.
On transparency question, the statement said that the CBN mandated that all FX transactions were posted online in the Reuters Trading Platform so that all stakeholders can easily verify all transactions in the market, adding that the Official FX Window at the CBN was closed to ensure a level-playing field in the pricing of foreign exchange.
Mu’azu insisted that a functional two-way FX market already exists in Nigeria.
Accrding to the statement, the CBN’s FX policies have resulted in the stability of the exchange rate in the interbank market over the past seven months and largely eliminated speculators from the market.
“Despite these positive outcomes the J. P. Morgan would prefer that we remove this rule; even though it is obvious that doing so would lead to an indeterminate depreciation of the naira. With dwindling oil prices, we believe that an order-based two-way market best serves Nigeria’s interest at the moment.
“While we would continue to ensure that there is liquidity and transparency in the market, we would like to note that the market for FGN Bonds remains strong and active due primarily to the strength and diversity of the domestic investor base.”
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