To Avert JPMorgan Ejection of GBI-EM, CBN is meeting key stakeholders

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Central Bank Of Nigeria Corporate Office, Abuja

As Nigerians are waiting for the extension deadline of JPMorgan’s warning or remove Nigeria from its Government Bond Index (GBI-EM) by the end of the year, the Central Bank of Nigeria (CBN) will today meet with chief executives and treasurers of commercial banks.

According to the Reuters’ report, the meeting would discuss issues surrounding the central bank’s foreign exchange policy.

The meeting is also expected to discuss other measures to improve liquidity in the foreign exchange market.
Already, the CBN Governor, Godwin Emefiele, had told investors that the apex bank was “doing everything possible” to ensure that the country remained on the JP Morgan Index in order to avoid the adverse consequences which exclusion could cause the country.

The central bank set tight controls on the foreign exchange market in February in a bid to curb the weakening of the naira in Africa’s biggest economy.

Also the recently adjustment of its exchange rate peg to N196.90 to a dollar at the interbank market yesterday market closed at N196.95 to $1 is a sign that many analysts are pointing to as move indicator that the CBN was beginning to think about how to loosen its currency regime.

JPMorgan recently warned that it might eject Nigeria from its GBI-EM by the year end unless Africa’s biggest economy restores liquidity to currency markets in a way that allowed foreign investors tracking the benchmark to transact with minimal hurdles.
JPMorgan said it extended the deadline to eject Nigeria by another six months to take into account the arrival of President Muhammadu Buhari.

JPMorgan, which runs the most commonly used emerging debt indices, placed Nigeria on a negative watch in January and then said it would assess its place on the index over a three to five-month period.

“Nigeria’s status in the GBI-EM series will be finalised in the coming months but no later than year-end,” the international bank said.
However, analysts have pointed out that it would not be in the interest of JPMorgan to see Nigeria excluded from that index.
Removal from the index would force funds tracking it to sell Nigerian bonds from their portfolios, potentially resulting in significant capital outflows.

This in turn would raise borrowing costs for Nigeria couple with a sharp revenue drop following a plunge in oil prices.
JPMorgan included Nigeria on the widely followed index in 2012, when liquidity was improving, making it only the second African country after South Africa to be included. Other Nigeria bonds in JPMorgan are 2014, 2019, 2022 and 2024 bonds respectively.


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