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Nigeria Maintains the Stabilization Trade
Nigeria continues to keep promises on the currency and rates. The NGN rate has remained unified with the black market rate and the central bank has kept rates high, now positive in real terms as well.
Which in turn is balancing the external accounts. The combination of FX weakness and financial tightening is not great for domestic demand, but it has put the external balance back in surplus and is a positive signal for transparency and for export investment.
The budget is still an issue. On the other hand, we are still waiting for evidence of sustained fiscal improvement, which keeps money growth and inflation pressures on the strong side.
As a result we are ambivalent about owning local assets at this point, despite the strong carry and coupon returns to date. By contrast, we continue to see value in hard currency debt.
Nigeria Maintains the Stabilization Trade (PDF)
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