Thursday 10 October 2013

Yellen pick bullish for naira, as Fed seen extending stimulus


Yellen pick bullish for naira, as Fed seen extending stimulus


Reports that Janet Yellen was picked by US President Barack Obama to lead the Federal Reserve is bullish for the naira as most analysts expect her to maintain monetary stimulus that has fueled appetite for emerging-market bonds and stocks.
Yellen, 67, would succeed Ben S. Bernanke, whose term expires on January 31, 2014 provided she is confirmed by the United States Senate.
Yellen supported the Fed’s bond buying programmes and was a driving force behind a strategy adopted in 2012 to commit the bank to goals on inflation and unemployment.
Emerging-market stocks plunged in May when chairman Ben. S. Bernanke signaled that record easing may be pared, then rebounded when the Fed maintained stimulus last month.
The Yellen pick may give the Central Bank of Nigeria (CBN) some breather on the naira, as fund flows to emerging markets resume on prospects of delayed tapering of stimulus.
Some emerging market currencies have gained on the news.
The rand gained 0.4 percent to 9.9537 per dollar as of 9 a.m. in Johannesburg, the best performance out of 16 major currencies tracked by Bloomberg.
The naira, which has outperformed the rand this year on a relative basis has lost 2.06 percent per dollar this year, and closed at N159.9/ dollar at the inter-bank market on Wednesday, according to data from the FMDA.
The lack of foreign capital inflows in recent months- after they picked up following the inclusion on Nigerian bonds in JPMorgan’s EM bond index last year- has led to sustained pressure on the naira.
The flows have been slowing as interest rates in developed markets rose.
Nigeria’s foreign reserves have fallen 6.6 percent since the end of May, as the CBN stepped up its defence of the naira on the back of slowing inflows.
Dollar reserves stood at $45.1 billion as at October 8, down from $48.4 billion on May 31.
The CBN liberalised retail forex market and reintroduced the Retail Dutch Auction System (RDAS), it also introduced a 50 percent cash reserve requirement (CRR) on public sector deposits, and kept its benchmark MPR at an elevated level of 12 percent in a bid to curb naira volatility.
The CBN actions are a back up for the naira although it may be “a prelude to naira depreciation,” according to Bismarck Rewane, CEO of Financial Derivatives Company (FDC).
The Yellen pick may also help to re-assure emerging markets and the global economy, which may ultimately put a firm bid underneath oil prices, helping to boost the Nigerian economy and naira.
Spot Brent crude, is down 6 percent since July, as Nigerian crude production fell to 1.8 mbpd in the period.
Nigerian equity market investors – apparently taking a cue from EM bullish sentiment on the Yellen pick – sent the NSE index up 0.96 percent on Wednesday with gains in heavyweight blue chip Dangote Cement. The NSE all share index is up 36.7 percent year to date and closed above the 37,000 mark on Wednesday.
Yields on 10-year FGN bonds due 2022, fell 5 basis points to 13.26 percent, according to FMDA data.

- BusinessDay

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