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IMF Revives Recession Warning for U.K. Economy Over Brexit Vote

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IMF

The International Monetary Fund weighed in once more with its thoughts on Britain’s referendum, warning the U.K. could slide into a recession if it quits the European Union.

In a 64-page document, the Washington-based fund said that the size of the hit would depend on a multitude of factors, though its overall assessment is that the U.K. “would likely be worse off economically in the long run.”

The IMF also warned of a potential credit squeeze if liquidity markets dry up, which could stymie spending and investment. The Bank of England has moved to preempt this with additional auctions to make funds available to banks before and after the vote.

The IMF delayed publication of the report by a day after campaigning in the referendum was halted following the fatal shooting of Labour Party lawmaker Jo Cox on Thursday. Speaking on Friday, Managing Director Christine Lagarde said her thoughts were with Cox’s family and friends.

‘Adverse’ Scenario

In its report, the IMF presented forecasts for “limited” and “adverse” Brexit scenarios. In the worse situation, it sees growth slowing sharply this year and the economy shrinking 0.8 percent in 2017. The impact would see the economy 5.6 percent smaller by 2019 compared with a baseline forecast, while unemployment would rise above 6 percent and the deficit would be wider.

IMF officials said that a permanent hit to output would probably mean deeper austerity. Chancellor of the Exchequer George Osborne has said an emergency budget would be required within two months of a Brexit to fill a hole in the public finances.

“While recognizing that this choice is for U.K. voters to make and that their decisions will reflect both economic and non-economic factors, directors agreed that the net economic effects of leaving the EU would likely be negative and substantial,” the organization said.

The intervention is not the first from the IMF, which has issued several warnings on the potential impact of Brexit. Lagarde has also defended the organization’s stance, saying that officials are “just doing our job” in presenting their analysis.

The BOE and the Treasury have also issued referendum-related forecasts, and all have been criticized by the pro-Brexit lobby for scaremongering. “Leave” campaigners have also accused the IMF of a poor track record for failing to predict past events such as the 2008 financial crisis.

Quantifying Losses

In the long run, much of the economic impact would depend on what could be negotiated after a vote to leave, the IMF said. There would be direct negative effects from reduced trade access, as the country would be unlikely to quickly establish agreements with other countries. Brexit could also bring losses in productivity, which would be magnified if Brexit were accompanied by restrictions on migration.

Uncertainty during the transition could delay investment and hiring, and some firms may relocate if their business depends on access to the single market, according to the fund. It sees finance and manufacturing as the most vulnerable.

“Exit from the single market would almost certainly reduce market access of U.K.-based financial firms — both domestic and foreign — to the EU, subject them to regulatory uncertainty for some time, and force them to re-examine business models,” the IMF said.

There’s also the potential for a vicious circle where households hold off buying durable goods and property, resulting in weaker demand which in turn pushes up unemployment and further reduces consumption, the IMF said.

The paper estimated that sterling could plunge as much as 15 percent, which would push up inflation to 4 percent — double the BOE’s target. IMF officials also discussed more fundamental economic issues for the U.K., including low productivity growth, the record current-account deficit and high levels of household debt.

The BOE has said it would face a tradeoff between containing inflation and boosting output in the event of a vote to leave. It warned on Thursday that the potential impacts of a U.K. exit from the EU extend beyond Britain, with spillover effects to the global economy. The IMF also highlighted external risks, and said other EU economies are most vulnerable, especially Ireland, Cyprus, Malta, the Netherlands and Belgium.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Naira

Exchange Rate in Nigeria Today; Thursday, June 24, 2021

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Dollar to Naira Exchange Rate - Investors King

The Nigerian Naira exchange rates to the United States Dollar and other currencies remained pressured as economic uncertainties amid weak macro-economic fundamentals continue to weigh on the currency outlook.

The local currency traded at N500 to a United States Dollar on the Parallel Market known as Black Market on Thursday morning. Against the British Pound, the Naira exchanged at N710 and N595 billion to a Euro.

Nigeria’s rising inflation rate, unemployment rate, weak new job creation and low earnings drag on consumer spending, retail sales and economic growth in general. The weak household income and rising import cost in a largely import-dependent nation have continued to hurt demand and business activities in general. See the Naira Exchange rate below.

Naira Black Market Exchange Rates

Morning * Midday** Evening *** Final Rates

Date USD GBP EURO YUAN Canadian Australian
NGN BUY/SELL BUY/SELL BUY/SELL BUY/SELL BUY/SELL BUY/SELL
24/06/2021 495/500 705/710 590/595 62/69 400/410 300/322
23/06/2021 495/500 705/710 585/592 62/69 400/410 300/322
22/06/2021 495/500 703/713 585/595 62/69 400/410 300/322
21/06/2021 495/500 703/710 585/592 62/69 400/410 300/325
18/06/2021 492/498 700/710 585/595 62/69 400/410 300/325
17/06/2021 483/493 700/710 590/600 62/69 400/410 300/322
16/06/2021 497/502 707/713 600/606 62/69 400/410 300/322

Bureau De Change Naira Rates

Date USD GBP EURO
NGN BUY/SELL BUY/SELL BUY/SELL
24/06/2021 485/495 700/718 580/605
23/06/2021 485/495 700/718 580/605
22/06/2021 485/495 700/718 580/605
21/06/2021 480/490 680/710 550/603
19/06/2021 475/490 680/715 580/603
18/06/2021 475/485 680/715 580/603
17/06/2021 478/490 690/710 590/603
16/06/2021 495/500 707/718 600/609
15/06/2021 495/500 707/718 600/609
14/06/2021 490/498 705/718 600/608

Central Bank of Nigeria’s Official Naira Rates

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Naira

Naira Falls to N500/US$1 at Black Market on Monday

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Naira - Investors King

Despite efforts by the Central Bank of Nigeria (CBN) to improve dollar liquidity across the foreign exchange segments and prop up Naira value, the Nigerian Naira dipped to N500 against the United States Dollar on Monday at the nation’s black market.

Last week, the CBN announced plans to increase forex allocation to Deposit Money Banks in a bid to ensure Nigerians access forex at a fair rate and not forced to patronise the black market operators with exuberant rates.

The CBN agreed to increase the amount allocated to banks for travellers, Small and Medium Enterprises among others. The banks also agreed to operate something akin to foreign exchange imprest account such that the coffers of banks will be replenished so long as they retire the initial amounts to the satisfaction of the CBN”, stated Mr. Osita Nwanisobi, the Acting Director, Corporate Communications Department at the CBN.

The Naira quickly gained against its global counterparts, improving to N493 against the American Dollar last week before resuming its long-term bearish trend to N500/US$1 at the black market on Monday 21, June 2021.

The embattled currency depreciated in value against both the Euro and British Pound, exchanged at N590 and N710, respectively.

At the NAFEX window, the CBN new adopted official rate, the Naira traded at N411.67 to a United States Dollar on Monday while investors transacted $94.17 million during the trading hours of Monday.

At the Bureau De Exchange section of forex, Naira sold for N495 per US Dollar, N715 to a British Pound and N603 to a Euro.

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Naira

Nigerian Naira Exchange Rates; Tuesday, June 22, 2021

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Naira - Investors King

 The Nigerian Naira lost N2 against the United States Dollar on Monday to N500 despite efforts by the Central Bank of Nigeria to prop the local currency value.

The embattled currency remained pressured at N710 to a British Pound and N590 to a single Euro.  Naira opened at N500 to a United States Dollar on Tuesday.

Naira Black Market Exchange Rates

Morning * Midday** Evening *** Final Rates

Date USD GBP EURO YUAN Canadian Australian
NGN BUY/SELL BUY/SELL BUY/SELL BUY/SELL BUY/SELL BUY/SELL
22/06/2021 495/500 703/713 585/595 62/69 400/410 300/322
21/06/2021 495/500 703/710 585/592 62/69 400/410 300/325
18/06/2021 492/498 700/710 585/595 62/69 400/410 300/325
17/06/2021 483/493 700/710 590/600 62/69 400/410 300/322
16/06/2021 497/502 707/713 600/606 62/69 400/410 300/322

Bureau De Change Naira Rates

Date USD GBP EURO
NGN BUY/SELL BUY/SELL BUY/SELL
22/06/2021 485/495 700/718 580/605
21/06/2021 480/490 680/710 550/603
19/06/2021 475/490 680/715 580/603
18/06/2021 475/485 680/715 580/603
17/06/2021 478/490 690/710 590/603
16/06/2021 495/500 707/718 600/609
15/06/2021 495/500 707/718 600/609
14/06/2021 490/498 705/718 600/608

Central Bank of Nigeria’s Official Naira Rates

Date Currency Buying(NGN) Central(NGN) Selling(NGN)
6/21/2021 US DOLLAR 409.2 409.7 410.2
6/21/2021 POUNDS STERLING 567.6422 568.3358 569.0294
6/21/2021 EURO 486.5797 487.1743 487.7688
6/21/2021 SWISS FRANC 444.0586 444.6012 445.1438
6/21/2021 YEN 3.7166 3.7212 3.7257
6/21/2021 CFA 0.7231 0.7331 0.7431
6/21/2021 WAUA 583.9237 584.6372 585.3507
6/21/2021 YUAN/RENMINBI 63.2634 63.3412 63.4189
6/21/2021 RIYAL 109.1113 109.2446 109.3779
6/21/2021 SOUTH AFRICAN RAND 28.7174 28.7525 28.7876

 

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