BY MICHAEL EBOH
The heightened pressure on the Federal Government of Nigeria for improved implementation of the 2012 budget will have a negative impact on the country’s currency, say analysts at Financial Markets Dealers Association.
The FMDA, in its Monthly Financial & Economic Report for July 2012, also said, the pressure for improved budget implementation will likely force the government to take steps that will hinder efforts to checkmate rising inflation.
It said, “Efforts to stabilize price through support for the naira might face difficult challenges on the basis of heightened pressure on budget implementation that might see more funds injected into the economy with inflationary pressure imminent in such circumstances.”
However, the FMDA is optimistic that the country’s currency will record a slight improvement at the end of August following efforts by the Monetary Policy Committee, MPC, to ensure price stability through support for the currency.
It stated that the country will witness increased inflow of foreign exchange, arising from the attractive yields in the debt market, a development which has brought about an increase in investors’ confidence.
The FMDA said, “The Naira may retain the relative appreciation recorded against the dollar in the past month in the near term following the MPC’s resolutions to support the naira relative to price stability.
“Moreover, the rising and unabated investors’ confidence in the Nigerian treasury bills and the fixed income markets on the back of attractive yields will further facilitate foreign exchange inflow.
“The behavioural pattern of yields on FGN bonds at the close of this month might continue in the near to medium term following the issuers bent on floating Diaspora bonds and more Eurobonds in an attempt to strategically reduce FG domestic debt on the back of high interest rates.”
Meanwhile, the Central Bank of Nigeria, CBN, is expected to auction Treasury Bills, TBs, worth N70.65 billion in the week ahead. Also, Treasury Bills worth N50.65 billion and Open Market Operation Bills worth N116.15 billion are expected to mature in the week ahead.
In their weekly bond watch, released yesterday, analysts at Dunn Loren Merrifield, DLM, predicted that the market is expected to be liquid and active as traders will try to cover their positions, considering the injection of funds from the monthly budgetary allocation (FAAC) and excess crude account.
“However it is not unlikely that the CBN will continue with its liquidity tightening measures via its Open Market Operation activities. On the planned inclusion of Federal Government of Nigeria’s, FGN, Bonds in JP Morgan’s emerging markets government bond index from the fourth quarter of 2012, The analysts at DLM said, Potentially, this is expected to bring about US$1 billion into the Nigerian bond market.
“We understand that Nigeria meets the minimum requirements to qualifying for the index which includes, but not limited to, being classified as a low/upper-middle income country by the World Bank for at least two successive years, the availability of two-way daily pricing on the bonds and a sufficiently liquid bond market among others.
“We also believe that the Central Bank’s lifting of restrictions on foreign investors’ participation in the bond market in July 2011 could have helped to facilitate the inclusion of the government bonds in the index.”