Nigeria’s key policy rate sits at 7.5 percent after the latest 100bp hike in March but look for the Central Bank of Nigeria (CBN) to steadily tighten in the coming months as March CPI (+12.8% y/y from 11.1 in February) printed above expectations and the prevailing fiscal trends suggest near-term relief may still be some time away.  To that end, analysts with Absa Capital noted recently that “the federal government’s plans to restructure the oil and gas sector also pose a risk as a reduction in fuel subsidies is planned.”  This of course is in addition to newly re-elected President Goodluck Jonathan’s ongoing electricity sector reform (which despite recent improvements per observers “is still only just below 4GW (August 2010 peak) compared with the target generation capacity of around 7GW” and a long-term target of 40GW that will ultimately require huge private investment), as well as his need to address an ever “turbulent” north, where UN data shows an average income of$718/capita in the northernmost 19 states–roughly half the figure of the remaining 17 states.  And while the IMF’s projection of 6.9% real growth in 2011 is largely a function of the country maintaining an average daily oil production at or greater than 2mbpd (revenue from which contribute around 80% of the government’s total), further unrest remains a real possibility such that the recent z-spread narrowing of Nigeria 21s looks overdone versus Sub-Saharan peers, especially when coupled with the CBN’s likely policy trend.  Yet a watchful eye on fallout from the impending Petroleum Industry Bill (PIB), monthly oil figures and FX reserves are all crucial for future re-entry, since the degree to which Nigeria can be comparatively shielded from rising food costs and can also subsidize lingering discontent is largely correlated to its energy prowess.

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