By Yakubu LAAH InvestAdvocate
Lagos (INVESTADVOCATE)-The Central Bank of Nigeria (CBN) on Tuesday lowered its foreign exchange (FOREX) benchmark as the naira falls to N228 to the dollar on the parallel (black) market, down 0.88 percent from the previous day, according to a Reuters report.
The report says on the contrary, the yield on the 2024 bond in the JP Morgan Government Bond Index (GBI-EM) climbed up 40 basis point to 14.74 percent.
According to the report, domestic investors are worried about a fall in the naira pushing inflation higher switched out of bonds into short-dated paper, traders said.
The CBN moved its naira peg to 196.95 against the dollar on Tuesday from 196.90 naira it set last week, the fourth time it has tweaked the peg since it was introduced in February, Reuters said.
The Nigerian central bank in its daily email statement affirmed the interbank closing rate on Tuesday was N196.95 trading $50.15 million, with bulk of the trades executed at the new central bank rate of 196.95, traders said.
Traders said the move may indicate that the bank is beginning to think about how to loosen its currency regime.
The report quoted Kevin Daly, portfolio manager at Aberdeen asset management as saying “There is no change to FX policy, therefore the locals are getting a bit nervous thinking that offshore investors will not be coming back any time soon,” “Effectively, the bond market is starting to price in a much wider move on the currency.”
In the same vein, Traders had said on Monday the negative outlook for inflation, which is hovering around the central bank’s upper limit of 9 percent, was one reason why local investors were selling bonds.
The report further affirmed that the most liquid 5-year bond yield rose to 14.95 percent, up from 14.71 percent the day before the bank unveiled the currency rules last week, but below 15.5 percent on the eve of the presidential election in March.
It quoted another trader as saying that the CBN may be trying to gauge the level at which it can defend the naira, but noted the bank was running low on ammunitions to do this.
Nigeria’s foreign reserves declined to $29 billion as of June 26, the central bank said, down from $29.6 billion at the end of May and 22.1 percent lower than a year ago.
The CBN had last week sought to conserve dollar reserves by stopping importers from accessing hard currency from the interbank market, further tightening liquidity and adding to market jitters.
JP Morgan had warned it may remove Nigeria from its Government Bond Index by the end of the year unless authorities restored liquidity to currency markets in a way that allowed foreign investors tracking the benchmark to transact with minimal hurdles.
