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Naira Falls as Bond Investments Said to Ease, Inflation Rises

Nigeria’s naira declined after inflation accelerated and foreign investments into the country’s bond market eased, according to Standard Bank Group Ltd.

The currency of Africa’s biggest oil producer retreated 0.1 percent to 158.85 per dollar by 12:32 p.m. in Lagos, the commercial capital, bringing its depreciation this year to 1.7 percent, according to data compiled by Bloomberg. Borrowing costs on the 16.39 percent domestic bonds due January 2022 increased 17 basis points to 11.44 percent, according to March 15 data compiled on the Financial Markets Dealers Association website.

“The interbank dollar-naira has shifted up as foreign portfolio flows slowed somewhat, which reduced the availability of dollars in the market,” Standard Bank strategists, led by Stephen Bailey-Smith in London, wrote in a report today. “Bonds are likely to trade in a 10.5 percent to 11.5 percent range for some time to come until a clearer direction on inflation and thus policy rates materializes.”

Nigeria’s inflation rate climbed to 9.5 percent in February, the statistics agency said on March 17, accelerating from 9 percent in January. Central Bank of Nigeria Governor Lamido Sanusi said on Jan. 25 it will be “very difficult” to keep it at the regulator’s target of less than 10 percent for the rest of the year.

Rate Decision

The Monetary Policy Committee will announce its decision on the benchmark interest rate, which was held at a record 12 percent for eight consecutive meetings, tomorrow. Nine out of 10 economists surveyed by Bloomberg expect the rate to be maintained, while one predicted a 50 basis-point cut.

“The improvement in economic growth in quarter four and some recent pressures on the naira, despite the CBN’s significantly stronger external buffers, also appear to favor an unchanged policy stance,” Ridle Markus and Dumisani Ngwenya, Africa strategists at Absa Capital Ltd. in Johannesburg, wrote in an e-mailed note today.

The central bank uses twice-a-week auctions to stabilize the naira as costs of importing refined fuel, which account for 70 percent of the local gasoline market, boosts dollar demand and puts pressure on the currency. The bank will $300 million to lenders today after cutting sales by 6 percent last week to $360 million.

Yields on Nigeria’s $500 million of Eurobonds due January 2021 fell 8.8 basis points, or 0.09 percentage point, to 4.219 percent.

Ghana’s cedi weakened for a fifth day, sliding less than 0.1 percent to 1.9350 per dollar in Accra.

To contact the reporter on this story: Chris Kay in Abuja at ckay5@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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