A Financial Analyst, Mr Johnson Ogunsola, said the proposed de-listing of Nigeria from the JP Morgan bond index list would have significant downside implication on the Naira.
Ogunsola made the statement in an interview on Wednesday in Abuja.
He said the delisting, if it eventually happened, would trigger a massive sell-off of Nigerian fixed-income assets by foreign investors tracking the bond index.
“It will further increase risk premium investors to require holding the Federal Government bond securities,” he said.
He said that the decision of the apex bank to stop banks from selling dollars sourced from the CBN among themselves was expected to further increase the pressure in the foreign exchange market.
According to him, analysts view the increase in the net open position of banks to 0.5 per cent as a positive step in easing liquidity pressure in the Foreign Exchange market.
This, he said, would further narrow liquidity in the interbank segment of the market and restrict easy movement of capital by foreign investors.
“We believe that this will rather increase the likelihood of the removal of Nigeria from the JP Morgan bond index,” he added.
Also, Mr Emmanual Adiefu, an Economist, said the shortage of dollars in local market would cause the removal of Nigeria from the JP Morgan Emerging Market Bond Index (EMBI) list.
He said the shortage made it difficult for foreign investors to repatriate funds from Nigeria.
“If Nigerian bonds are removed, this will only have a limited impact in the short term because many foreign investors have already liquidated their Nigerian bond holdings.
“So, the level of capital outflows from this event will be relatively small.”
He saif if Nigeria was not swiftly re-admitted to the EMBI, the level of portfolio inflows would remain relatively low, adding that it would undermine the naira and weaken growth prospects.
JP Morgan had in January put Federal Government bond in a negative watch and threatened to remove Nigeria from its Government Bond Index (GBI-EM) by the year-end, unless the Central Bank of Nigeria, CBN, restored liquidity to foreign exchange market.
The liquidity, it said, would allow foreign investors tracking the benchmark to transact with minimal hurdles.
JP Morgan added Nigeria to the widely followed index in 2012, when liquidity was improving, making it only the second African country after South Africa to be included.
It added Nigeria’s 2014, 2019, 2022 and 2024 bonds.
