The
Governor of Central Bank of Nigeria (CBN) Mr. Godwin Emefiele at the weekend
dismissed the claim of JPMorgan Chase & Co that there is a lack of
liquidity in the Nigerian foreign exchange market, saying the naira is
correctly valued and that Nigeria wants to remain in the index.
The
apex bank governor was quoted by Bloomberg as saying that “There is no truth in
the assertion by the index team that they do not see the liquidity,” adding
that “There’s no reason to begin to take a look at” the naira’s value after the
central bank devalued the currency in November.”
Nigeria
was placed on Index Watch Negative for JPMorgan local currency emerging market
indexes on Friday after the central bank measures in December reduced foreign
exchange and bond trading; measures the New York-based lender said make it
difficult for foreign investors to replicate the gauge.
The
governor who spoke ahead of tomorrow’s Monetary Policy Committee meeting in
Abuja said the apex bank was not consulted before the release of the JP
Morgan’s report. According to him, “We are very surprised at this action by the
JPMorgan index team. We want to stay in the index and we’re doing everything to
make sure we do.”
Meanwhile,
the CBN, on Friday, sold dollars to stem the naira’s drop to a record low after
JPMorgan Chase & Co. said the nation’s debt may be cut from its
local-currency emerging-market indexes.
According
to market report by Bloomberg, the naira depreciated to an all-time low of
188.48 against the dollar Friday. It pared losses after the regulator’s move to
trade 0.4 per cent stronger at 185.05 as of 7:35 p.m. in Lagos.
Nigeria’s
inclusion in the index will be assessed over the next three to five months,
JPMorgan said.
“It
would be a big blow” if Africa’s most-populous nation was excluded from the
indexes, Adebayo Omogoroye, head of trading at Guaranty Trust, the biggest
lender by market value in Nigeria, said by phone from Lagos.
Average
yields on naira-denominated government debt soared 2.5 percentage points in the
past three months, compared with a drop of 47 basis points through Thursday for
emerging-market local-currency securities, according to Bloomberg indexes.
The
CBN had limited lenders’ foreign exchange net-open positions to zero from one
per cent of shareholders’ funds at the end of each day in December.
It loosened the rule last week by increasing the limit to 0.1 per cent.
Emefiele described the open-position rule as “a moving target based on our view of the liquidity and macro situation. It’s not cast in iron.”
It loosened the rule last week by increasing the limit to 0.1 per cent.
Emefiele described the open-position rule as “a moving target based on our view of the liquidity and macro situation. It’s not cast in iron.”
“The
central bank will “meet legitimate foreign-exchange demand in the market, not
spurious or speculative demand,” he said. “When the banks are unable to, the
central bank will intervene to make sure that any investor that wants to go out
is able to do so freely, without any hindrance.”
Daily
trading volumes for the naira are still just $20 million to $30 million,
compared with about $300 million to $500 million six months ago, according to
Samir Gadio, head of African strategy at Standard Chartered Plc.
“Sourcing
FX has become a nightmare,” Gadio said by phone from London. “Theoretically,
there are no capital controls and you can take out whatever you want. But the
reality is that it’s much more difficult.”
Commercial
banks should source dollars from the central bank if they are struggling to
access foreign exchange for their clients, Emefiele said on January 6. The
regulator’s monetary policy committee meets on interest rates tomorrow, with a
decision set to be announced on Tuesday.
While
Nigeria could still keep its GBI-EM status, investors will want the regulator
to clarify how it will respond to JPMorgan’s review, Gadio said.
“They’re going to have to take appropriate measures in the coming weeks,” he said.
“They’re going to have to take appropriate measures in the coming weeks,” he said.
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