Nigeria’s relatively muted inflation figures for June (10.2% y/y from 12.4% in May) included food inflation (51% of CPI) at its lowest level in more than three years (9.2% y/y from 12.2% in May) and a drop as well in housing inflation (including household water, electricity, gas and other energy prices) to 16% y/y from 18.7% the month prior which, taken alongside the recent removal of regulations hitherto requiring foreign investors to hold the country’s sovereign paper for at least one year helped to shift the yield curve lower (ahead of Wednesday’s auction analysts with Absa Capital noted that “yields from the 2-20y space are now in the 9.5-11.8% range versus 10.5-13% in early July”).  That said a more prudent approach may consider that despite the suddenly surprisingly favorable inflation outlook, augmented no doubt by the naira’s 3.6% dollar appreciation over the past one and a half months (likely fueled in part by the aforementioned forex-friendly reform as well as a fairly volatility free 2.2mbpd of oil production in the past six months), central bank (CBN) Governor Lamido Sanusi’s rhetoric this summer has been continually hawkish for good reason: analysts expect inflation to creep upwards in the second half of the year to between 11-12%, a figure that excludes the impact stemming from the impending removal of fuel subsidies which remain in question but should ultimately help shore up at least one facet of fiscal vulnerability (Barclays wrote in July, for instance, that “currently the import price of fuel and added margins are more than double the retail price of N65/litre, which means one can expect the fuel price to rise sharply . . . [and] a significant effect on inflation”).  Thus while the CBN’s last policy rate boost came in May (+50bp) and the latest round of price inflation numbers may serve to somewhat delay another tightening bout, ultimately better entry points on the credit should reveal themselves in time.

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