Nigeria’s five-year borrowing costs are poised to hit a record high at a debt auction tomorrow on concern inflation is climbing to the fastest in more than two years.
The Debt Management Office will offer as much as 83.9 billion naira ($515 million) in debt, including up to 30 billion naira of 15.1 percent bonds due 2017, according to a statement on its website. Yields on the existing 2017 notes rose seven basis points to a record high of 15.71 percent on June 25, according to prices on the Financial Markets Dealers Association website.
While inflation slowed to 12.7 percent in May from 12.9 percent in April, the rate is set to peak at 14.5 percent in the third quarter, the highest since April 2010, according to the Central Bank of Nigeria. Policy makers led by Governor Lamido Sanusi have held the benchmark interest rate at 12 percent this year to curb the naira’s decline and combat inflation, after raising it by 5.75 percentage points in 2011.
“Inflation risk remains the blemish,” Dumisani Ngwenya, a Johannesburg-based Africa strategist at Barclays Plc’s Absa Capital, said in e-mailed comments yesterday. The dip in price growth in May is probably temporary, said Ngwenya.
Higher gasoline prices are spurring inflation after the government partially removed fuel subsidies in January. Gas prices increased to 97 naira a liter (0.26 gallon) in January from 65 naira.
The naira, which was Africa’s best-performing currency against the dollar in the first five months of this year, is now down 0.2 percent this year, trading at 162.65 per dollar as of 3:21 p.m. in Lagos, the commercial capital.
While domestic gasoline prices increased on the subsidy change, Africa’s largest oil producer is earning less from its crude exports because of the worldwide price plunge. Bonny Light crude, Nigeria’s benchmark blend, has dropped 28 percent from a March 13 peak of $128.47 per barrel.
Oil accounted for 83 percent of Nigeria’s total exports in the fourth quarter, according to the statistics office. The country of 160 million people depends on crude exports for more than 80 percent of government revenue and 95 percent of foreign- currency income.
“The key factor driving the yields up is the sustained pressure on the local currency as a result of foreign investors’ profit-taking and moving their funds out of the market,” said Tola Odukoya, an analyst at Dunn Loren Merrifield Ltd. in Lagos. “We expect the yields of all the bonds to come out higher than that of the previous auction.”
The West African nation’s foreign reserves have fallen $612 million this month to $37.1 billion as of June 22 as the central bank has increased dollar sales at twice-weekly currency auctions and directly to the market to defend the naira.
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