African currencies from Nigeria’s naira to Kenya’s shilling strengthened and yields on the continent’s dollar bonds fell after the Federal Reserve refrained from reducing stimulus that has triggered a rally across emerging markets.
Fed policy makers led by Chairman Ben S. Bernanke said yesterday they want more evidence of lasting improvement in the U.S. economy before paring the central bank’s $85 billion monthly bond-buying program. The median estimate in a Bloomberg survey of economists was for a $5 billion reduction. Ten out of 24 African currencies tracked by Bloomberg gained against the dollar, six were unchanged and eight weakened.
“The Fed produced a huge surprise,” Societe Generale SA strategists, led by London-based Benoit Anne, wrote in an e-mailed note. “Emerging-market investors will move on and go on a buying spree.”
Nigeria’s naira advanced as much as 1.2 percent to 160.13 per dollar and was trading 0.7 percent stronger at 160.95 as of 12:58 p.m. in Lagos, the commercial capital, set for its highest closing level since Aug. 14. Zambia’s kwacha jumped 0.9 percent to 5.245 per dollar, set for its best close since May, while Kenya’s shilling climbed 0.3 percent to 87.20 per dollar, heading for its best close since July 19.
Kenya, East Africa’s largest economy plans to raise at least $1.5 billion this year in its first sale of dollar bonds, following other sub-Saharan African nations including Zambia and Rwanda selling dollar-denominated debt, which will help plug a budget deficit and finance construction of ports, railways and power-generation projects.
The Fed holding off on paring bond purchases is also “good news” for Kenya’s expected Eurobond sale, Charles Robertson, the London-based chief global economist at Renaissance Capital, wrote in an e-mailed note today. “It might reduce the yield by 50 basis points, so Bernanke may have saved Kenya $75 million over the 10-year lifetime of a $1.5 billion Eurobond.”
Yields on Zambia’s $750 million of international debt maturing September 2022 fell 18 basis points, or 0.18 percentage point, to 7.24 percent, while borrowing costs on Ghana’s $1 billion Eurobonds due October 2023 declined eight basis points to 8 percent. The rate on 10-year Nigerian dollar-denominated notes slid 12 basis points to 6.13 percent, the lowest since Aug. 21.