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Nigeria's expulsion from J.P Morgan's bond index may increase lending rates —Expert

By News Express on 10/09/2015

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The Head of Strategy, Citibank, Mr. Sharaf Muhammed, said the expulsion of Nigeria from J.P Morgan's Bond Index for Emerging Markets might increase lending rates for the country.

Muhammed said this in an interview with the News Agency of Nigeria (NAN) in Abuja on Wednesday.

NAN recalls that J. P Morgan Chase and Co. is the largest financial services holding company in the United States and the world's fifth largest bank with total assets of 2.6 trillion dollars.

J.P Morgan added Nigeria to its index in 2012 and on Jan. 16, 2015, it placed Nigeria on a negative index watch and finally expelled Nigeria on Tuesday.

According to J.P Morgan, Nigeria is expelled from its Government Bond index for Emerging Markets for lack of liquidity for transactions, transparency in the determination of exchange rate, among others.

Muhammed said that Nigeria stands to lose a lot financially as a result of its expulsion.

“When Nigeria borrows money by selling bonds, they pay investors based on the prevailing bond yields.

“This means the next time the Nigerian government goes out to borrow it will no longer attract a 10 per cent yield, but it will now borrow from investors at a yield of 12.5 per cent or even more.

“This will cost the government more money in servicing interest, thus taking money it could have used for capital projects for debt servicing.”

He said by taking Nigeria off the index, it might result to little or no demand for Nigeria bonds from foreign investors.

“Already, since JPM threatened to expel Nigeria in January, foreign holding of our bonds has dropped from a peak of 11 billion dollars in 2013 to three billion dollars today.

“It is likely that this may shrink further, thus affecting the demand for our debts.

“A lack of demand for our debts means yields may even get higher as fewer investors will now seek for our bonds.”

Muhammed said that this might also result to Nigeria losing its prestige as not just the largest economy in Africa, but the economy attracting the most foreign investments.

He said that if the situation was not handled properly it might create demand pressure on forex and trigger another devaluation of the naira.

A statement signed by the Director, Corporate Communications, Central Bank of Nigeria (CBN), Mr. Ibrahim Mu’azu, on behalf of CBN, and Federal Ministry of Finance, said they would focus on what was best for Nigeria.

“In our continuous bid to strengthen the Nigerian financial market and enhance our status as a preferred destination for investors, we take measures to improve the market.

“Despite the fact that oil prices have fallen by nearly 60 per cent in one year, which should expectedly reduce the amount of liquidity in the market, CBN ensure that all genuine forex demands are met.

“On transparency, the CBN mandated that all forex transactions were posted online in the Reuters Trading Platform so that all stakeholders could easily verify all transactions in the market.

“We introduced an order-based, two-way forex market, which had 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 will 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.”

It said that the Federal Government viewed Nigeria and the interest of Nigerians as paramount, thus would only continue to take economic decisions that would impact positively in the lives of Nigerians. (NAN)

•Photo shows President Buhari.

Source News Express

Posted 10/09/2015 04:09:25 AM





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