Connect with us

Economy

China Cuts Interest Rates

Published

on

China

China stepped up monetary easing with its sixth interest-rate cut in a year to combat deflationary pressures and a slowing economy, moving ahead of anticipated fresh stimulus by central banks from Europe to Japan and possible tightening in the U.S.

The one-year lending rate will be cut to 4.35 percent from 4.6 percent effective Saturday the People’s Bank of China said on its website on Friday, while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.

Authorities are seeking to cushion an economy forecast to grow at the slowest annual rate in a quarter century as old growth drivers such as manufacturing and construction falter and new drivers like consumption struggle to compensate. China’s reduction to record-low rates and anticipated stimulus in Europe and Japan add to monetary policy divergence with the U.S., where the Federal Reserve is considering its first rate increase in nine years.

 “The Fed may be considering raising interest rates, but in much of the rest of the world, China included, central banks are facing weak growth and a lack of inflation, and are thus more likely to ease rather than tighten monetary policy,” said Louis Kuijs, head of Asia economics at Oxford Economics Ltd. in Hong Kong.

Stock-index futures jumped in Hong Kong and European stocks extended gains. The Standard & Poor’s 500 Index was 1.1 percent higher at 10 a.m. in New York.

Complicated Outlook

Overall prices at a relatively low level give room for reduced interest rates, the PBOC said in a Q&A statement after the announcement. The domestic and foreign situation remain complicated, and continued downward pressure on economic growth requires the fine tuning of monetary policy, it said.

The PBOC also scrapped a deposit-rate ceiling that limited the rate banks could pay savers, saying the move was made possible by a decline in market-based interest rates. Removing such controls boosts the role of markets in the economy, part of efforts by Premier Li Keqiang to find new engines of growth and to bolster competition in banking.

 The need for new growth engines was underscored by data Monday that showed the economy expanded 6.9 percent in the three months through September from a year earlier. While that beat economists’ estimates for 6.8 percent, the expansion benefited from an out-sized contribution from financial services after a surge in share trading from the year-earlier period. That prop is unlikely to endure, raising challenges to Li’s growth goal of about 7 percent this year.

Factory Deflation

Meantime, consumer inflation at about half the government’s target and a protracted slump in producer prices added room for additional easing.

“Clearly the People’s Bank of China is on a mission to ease policy and has been for a year,” said George Magnus, a senior independent economic adviser to UBS Group AG in London. “With the economy losing momentum, deflation embedded in the corporate sector and rebalancing making limited headway, the central bank is being directed to ease monetary policy further. And of course, this isn’t the end of the road yet.”

China’s leaders are gathering next week to formulate policies for the nation’s next five-year plan, President Xi Jinping’s first such blueprint. They are expected to announce a dismantling of currency controls, lower barriers for foreign non-bank financial firms, emphasize home-grown technologies and prioritize population growth.

Fed Meeting

The Fed meets next week to mull when to raise its benchmark rate from near zero after holding it there since December 2008. Meanwhile, European Central Bank President Mario Draghi signaled this week that fresh stimulus is on the way, and economists anticipation of further support in Japan next week are higher than for any meeting since the central bank unexpectedly added to its easing policy in October 2014.

China’s rate cut has “mixed implications for U.S. monetary policy,” said Bill Adams, an economist at PNC Financial Services Group.

“To the extent that interest rate cuts reduce downside risks for Chinese and global growth, they should increase the Fed’s confidence that the U.S. economy will be able to absorb higher interest rates,” Adams said. However, “if today’s rate cut spurs a new round of depreciation of the Chinese currency, it will make it more difficult for the Fed to raise interest rates before year-end 2015.”

Capital Outflow

The PBOC’s surprise currency depreciation in August roiled global markets and spurred an exit of cash from China. Capital outflows climbed to $194.3 billion in September, exceeding the previous high of $141.7 billion in August, according to a Bloomberg estimate that also takes into account decisions by exporters and direct investment recipients to hold funds in dollars.

Offsetting such a leakage, analysts at Everbright Securities Co. said the RRR reduction would release at least 800 billion yuan ($126 billion) of liquidity.

The PBOC uses the reserve ratio to control the amount of available cash in the economy. In the years of capital inflows, it increased the amount of deposits banks had to lock away to ensure excessive liquidity didn’t spur inflation. This year, with growth slowing and capital flowing out of the nation, the central bank has reversed course to lower the requirement so banks can boost lending and help cushion the slowdown.

“Chinese officials are stepping on the gas,” said Frederic Neumann, co-head of Asia Economics Research at HSBC Holdings Plc in Hong Kong. “The joint move on interest rates and the reserve-requirement ratio shows that Beijing is determined to get the car out of the mud and get things moving again.”

Bloomberg

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Economy

Vice President, Yemi Osinbajo Seeks Collaboration With Vietnam on Agriculture and Technology

Published

on

yemi-osinbajo

Nigeria’s Vice President, Prof Yemi Osinbajo has sought collaboration with Vietnam in the areas of agriculture and technology. The vice president spoke in Vietnam at a bilateral meeting on Monday. 

During the meeting with his Vietnamese counterpart, Võ Thị Ánh Xuân, Osinbajo acknowledged both countries’ market potentials in the digital economy, telecommunications, and agriculture. 

Speaking at the Presidential Palace in Hanoi, Vice President Yemi Osinbajo noted that telecommunication penetration in Nigeria is one of the deepest in any developing country, stating that about 120 million Nigerians now use one telecom service or the other.

Calling for collaboration on digital economy, Osinbajo said “We have close to 120 million of our citizens who have put to use telecom equipment or devices. And also, broadband connectivity is vastly improved. We hope that by 2025, we will have broadband connectivity for all of our over 200 million people”. 

On the call for collaboration in the area of agriculture, the vice president noted that cashew production is an important area in which both counties can partner. 

He said ” Given the food crisis that the world faces today, and is likely to continue facing even in the coming years, I like to say that the way forward is for our countries to collaborate. For instance, establishing cashew processing plants in Nigeria”. 

Investors King understands that Vietnam is the world’s second-largest cashew processor with an annual processing capacity of 1.2 million tons representing up to 40 percent of the world’s total capacity. 

Speaking at the event, the Vietnamese Vice President commended Nigeria’s leadership role in the ECOWAS sub-region and Africa generally, especially in the peaceful resolution of disputes. 

She also commended Nigeria’s handling of the Covid 19 pandemic while reposing confidence in Nigeria’s ability to resolve challenges confronting the African continent and the West African region in particular. 

Conclusively, she added that her country would continue to work with Africa to meet its aspirations in agriculture, clean energy and digital penetration.

Continue Reading

Economy

Togo, Benin, and Niger Republic Owe Nigeria N4.1 Trillion in Electricity Debts

Nigeria currently supplies electricity to the Republic of Benin, Togo, and Niger through the Nigeria Bulk Electricity Trading, NBET Plc

Published

on

Electricity - Investors King

The House of Representatives on Public Account has disclosed that Nigeria’s neighbouring countries, Togo, Benin, and Niger Republic owe the country about N4.1 trillion in electricity bills.

The revelation was contained in a letter sent by the committee to the Managing Director of Nigeria Bulk Electricity Trading, NBET Plc, Dr. Nnaemeka Eweluka.

According to the letter which was signed by the Chairman of the Committee, Hon. Oluwole Oke, the Managing Director of NBET is expected to appear alongside Dr. Marilyn Amobi, who served as MD/CEO from 2016 to 2020. 

The house committee has accused the former MD, Amobi of non-rendition of the Audited Accounts for the years 2014, 2015, 2016, 2017, 2018, and 2019.

Investors King understands that Nigeria currently supplies electricity to the Republic of Benin, Togo, and Niger through the Nigeria Bulk Electricity Trading, NBET Plc. About 6 percent of the electricity generated in the country is sold to the neighboring countries. 

Meanwhile, according to the managing director of NBET, the federal government is working on structures that will enhance power distribution in the country, stating that most of the power-generating companies are currently located in the southern part of the country. 

“Most of the power generation companies are located within the south-south and south-west largely because of gas with one in the south-east, of course, we have the hydros in Niger state,” he said.

The MD added that Nigeria could generate up to a capacity of about 14,000 megawatts. He however noted that the distribution capacity is only between 4,000 to 5,000 megawatts per day.

Eweluka nonetheless sounded a note of hope, making references to the intervention projects that are currently ongoing such as the partnership with Simens.

“To address this gap between what is available and what the system can currently carry; there are a number of intervention projects that the government is currently pursuing, that include the presidential power initiatives in partnership with Siemens,” he concluded.

Continue Reading

Economy

No Plan to Increase Fuel Price; Says FG

Published

on

NNPC - Investors King

The Federal Government has stated that it has no plan to increase fuel price during the yuletide period.

This assurance is coming amid the nationwide fuel scarcity which has pushed the price of petrol above N250 in many retail stations.

Investors King learnt that fuel is being held for N250 per litre in Abuja and several other cities across the country while black marketers are charging between N400 and N450 per litre.

The scarcity and the high price of fuel are however becoming unbearable for many Nigerians, especially those who have reasons to embark on business travel for the December festivals.

According to the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria (IPMAN), Chief Ukadike Chinedu, most of the association members, who owned the bulk of the filling stations across the country, were now subjected to purchasing PMS at about N220/litre, which was why many outlets currently dispensed at about N250/litre and above.

He noted that the cost of the commodity has been on the rise due to its unavailability and other concerns in the sector. 

He added that the price of fuel could be sold from N350/litre to N400/litre before the end of the year. 

Meanwhile, a number of senior officials at the NNPC had stated that the subsidy was becoming too burdensome on the national oil company, as this was another reason for the scarcity of PMS.

According to a source who is familiar with the development as reported by Punch News, “How can we continue to import 60 million litres of petrol daily and keep subsidising it, while millions of litres are either diverted or cannot be accounted for? The burden is too much, as you rightly captured in that story”. 

Investors King understands that NNPC is the sole importer of petroleum into the country and it pays billions of naira every month to subsidise the product to N147 per litre. 

Reuters News reported that in August 2022, NNPC paid more than $1 billion as fuel subsidy while the federal government earmarked N3.6 trillion as fuel subsidy in the 2023 budget proposal. 

Continue Reading
Advertisement
Advertisement




Advertisement
Advertisement
Advertisement

Trending