20 February 2013

Nigeria: Cost of Borrowing Continues to Tumble On Single Digit Inflation

Yields on federal government's debt instruments (Nigeria's cost of borrowing), both foreign and local continued, to nose dive on the news of reduced inflation figures for January 2013.

Borrowing costs on Nigeria's $500 million of Eurobonds fell for a second day while local currency yields declined to a record low after inflation eased to single digit.

Yields on the dollar debt due January 2021 slipped one basis point to 4.352 per cent, just as local currency debt maturing January 2022 tumbled 29 basis points to a record low 10.51 per cent, according to yesterday's data compiled by Bloomberg.

The nation's inflation rate fell to nine per cent in January 2013 from 12 per cent in December 2012, as the effect of a year-earlier reduction in fuel subsidies dropped out of the calculation, according to statistics released by the National Bureau of Statistics (NBS) on Monday. Inflation is forecast to average 9.8 per cent this year, the statistics office said.

London-based analyst at FM Capital Partners Limited, Kojo Amoo-Gottfried, had told investors, "If trend is sustained, it is quite likely that there will be sufficient headroom for policy makers to start easing policy. This continues to bode well for the country and most likely means that yields are going to come under sustained pressure."

The NBS said Nigeria's economy will probably expand 6.8 per cent this year compared with growth of 6.6 per cent in 2012. The foreign-currency reserves of Africa's most populous country have advanced six per cent this year to $46.72 billion, the highest since at least 2010, according to February 15 data compiled by the Central Bank of Nigeria (CBN).

"Given that oil continues to remain high, the country's overall credit worthiness continues to improve. With growth expected to rise to 6.8 per cent, even without easing policy, there is the possibility that the economy may end up being one of the star performers on the continent so long as political issues and oil prices remain supportive," Amoo- Gottfried said.

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