Central Bank of Nigeria obtains exemption for money markets ahead of COVID-19 lockdown

The Central Bank of Nigeria has announced that it has obtained exemptions from the President to allow very skeletal operations in the financial system and money markets in order to ensure the system remains in light operations during the ongoing lockdown. As Lagos, Abuja, and Ogun states brace for the lockdown measures, the impact on the financial markets is a key concern. Namdi Nwizu, Co-Managing Partner at Comercio Partners, shared his insights on how the markets may be influenced by these restrictions. The announcement of skeletal operations in the financial markets comes as a relief to many, as initial concerns were raised about the complete halt in operations. However, with the majority of market participants expected to be stuck at home, activity in the financial markets is likely to be muted. Nwizu highlighted that only those who can effectively work from home, such as pension funds, asset management firms, and some brokers, will likely continue to participate in the markets during this period. The Euro bond market has been particularly volatile in recent weeks, with yields experiencing significant fluctuations. The uncertainty surrounding oil prices and the potential increase in default risk are key factors influencing investor sentiment in the Euro bond market. Nwizu pointed out that Euro bonds are now trading at higher yields than Nigerian bonds, making them an attractive option for investors looking to capitalize on the yield differentials by converting Naira to dollars. The impending OPEC agreement expiry is expected to further impact the oil market, potentially leading to increased supply and downward pressure on prices. The exchange rate vulnerability is also a pressing concern, with the Naira weakening against the dollar as oil prices continue to decline. The Central Bank's decision to adjust the I&E window market rate and the parallel market rate reflects the ongoing challenges in the foreign exchange market. As oil revenues dwindle, the Naira is likely to face further depreciation. In the local market, Nwizu anticipates some buying interest from pension funds seeking liquidity. However, with limited market activity and cautious bank behavior, yields are expected to widen as banks hold onto their inventory. The combination of constrained market liquidity and increased yield expectations may result in a stagnation of market yields. Overall, the uncertainty in the financial markets persists as the COVID-19 lockdown measures continue to impact market dynamics.