Economic growth in Nigeria is likely to rise above seven percent in this year with inflation slowing below double digits, the International Monetary Fund has said.
It also emerged late on Thursday that British Barclays will add approximately $16 billion of Nigerian debt to its emerging markets government bond index from April 1,
In its 2012 review of Africa's second largest economy, the IMF projected that the pace of economic growth in Nigeria would pick up to 7.2 percent this year from 6.3 percent in 2012.
It said Nigeria's tightening of monetary policy was in line with the authorities' efforts to contain inflation below 10 percent. The IMF also estimated that Nigeria's currency, the naira, was "broadly in line with fundamentals."
The Central Bank of Nigeria held rates at 12 percent last week for the ninth consecutive time, citing concerns about ongoing external price pressures. Nigeria’s consumer inflation rose to 9.5 percent in February from 9 percent in January, staying within the central bank's single digit target. Food prices rose to 11 percent.
In a related development, ten Nigerian bonds will be eligible for the Barclays Emerging Markets Local Currency Government Index and the country's projected weight would be about 0.9 percent, a spokeswoman said.
Africa's biggest crude oil producer will become the second sub-Saharan African country after South Africa to enter the index following reforms to improve access to its bond market.
Reuters reports that Nigeria, which has one of the continent's most developed debt markets, was included in the JP Morgan Government Bond Index – Emerging Markets (GBI-EM) from October 1 last year, increasing its appeal to mainstream foreign investors.
JP Morgan estimated that Nigeria would attract at least $1.5 billion of inflows as a result of the inclusion.
Since October, yields have fallen by more than 200 basis points on some tenors, though they have climbed recently as foreign interest wanes.
The Barclays index is less widely followed than JP Morgan's and the impact of the inclusion on yields may be more muted.
"We suspect only a handful of foreign funds investing in Nigeria track the Barclays bond index and that the impact on the long end will be limited from current levels. This is unlikely to generate the same yield compression as experienced with the GBI-EM inclusion," Samir Gadio, emerging markets analyst at Standard Bank told Reuters.
However, the inclusion could explain why some bonds have traded moderately stronger in recent days while the short end of the curve sold off, Gadio added.
The yield on the 7-year bond maturing in June 2019, which will be included in the index, fell 24 basis points to 10.96 percent on Thursday.
That on the 5-year instrument maturing in 2017, also eligible, declined 41 basis points to 10.81 percent.
“The criteria for joining the Barclays index include market size and accessibility,” Brian Upbin, head of benchmark index research at Barclays told Reuters in November, when the bank first announced Nigeria was to become a member.