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MPC Meets Today, May Cut Interest Rate

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The Central Bank of Nigeria’s Monetary Policy Committee will today (Monday) begin its two-day bi-monthly meeting to review the state of the economy.

It is expected to take key policy decisions that will influence the direction of the economy.

Top on the agenda of the meeting is the need to tackle the biting recession occasioned by slow growth in the economy, rising inflation, and the volatility in the foreign exchange market.

In a notice posted on its website, the  CBN stated that 252nd meeting of the MPC would hold at 10am on Monday and Tuesday at the corporate headquarters of the apex bank in Abuja.

Economic experts expect the 12-member MPC to begin an expansionary monetary policy by reducing the Monetary Policy Rate (the benchmark interest rate), and lower the Cash Reserve Ratio.

According to the economists, the MPC will need to reduce the liquidity ratio and take measures to address the lingering volatility in the foreign exchange market.

The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said the MPC might have no other choice than to purse an expansionary monetary policy considering the state of the economy and the recent stimulus package announced by the fiscal authority.

He said, “We expect an accommodative monetary policy as against a contractionary one. The CBN will want to complement the effort of the fiscal authority, especially as regards the stimulus package that was recently announced.”

In an economic bulletin released on Friday, Rewane added, “The divergence between the year-on-year headline inflation and the annualised monthly rate of 6.17 per cent poses a major dilemma to the apex bank. Even though the monthly measure is more relevant to inflation expectations, it may need to maintain consistency with the previous measure.

“The clamour for a stimulus package and lower interest rates by the government and the public will force a more accommodative stance by the committee in spite of other considerations.

“The high inflation environment has reduced consumer spending, real returns and corporate profitability margins. The markets have reacted accordingly.”

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, was also of the view that the MPC would begin an accommodative monetary policy.

He said, “It is clear that we have not been able to control inflation with the tightening policy. If the overriding consideration is to reflate the economy, the MPC will need to reverse the last increase made in the MPR by reducing it from 14 to 12 per cent. The committee may need to cut the Cash Reserve Ratio from 22.5 per cent to 20 per cent and then to 15 per cent later.

A professor of Economics at the Olabisi Onabanjo University, Sheriffdeen Tella, also said he expected the committee to reduce the MPR in order to lower interest rate on bank loans and subsequently boost credit in the economy.

He said, “This is a time to begin an expansionary monetary policy. The MPC must reduce the MPR, reduce the liquidity ratio or maintain the status quo. We have seen that the inflation we are experiencing is cost-push, i.e caused by increase in cost of capital and not by demand pull. So we need to reduce the cost of capital in the economy.

“There is also a need for the committee to tell us how they intend to tackle the volatility in the exchange rate. They need to tell us whether the volatility is being caused by speculators or real demand. If it is caused by real demand, there is nothing they can do about it. However, if it is activities of speculators, then they must state how they intend to deal with it.”

The MPC had during its July meeting hiked the MPR by 200 basis points to 14 per cent.

The 14 per cent MPR announced by the CBN is the highest in over a decade.

However, the committee left the CRR and the liquidity ratio unchanged at 22.5 per cent and 30 per cent, respectively.

The CBN Governor, Mr. Godwin Emefiele, who announced the decision of the committee after a two-day meeting held at the apex bank’s headquarters in Abuja, said eight out of the 12 members of the committee attended the meeting.

Out of the eight, he said five members voted in favour of monetary tightening, while the other three voted to hold the MPR at 12 per cent.

In taking the decision to increase the MPR, the CBN governor said the committee was faced with two policy choices – whether to hold or reduce the rate to stimulate growth, or increase it in order to curb inflation.

Emefiele, however, said when considered from the standpoint that the primary mandate of the CBN was to maintain price stability, the committee decided to focus on its mandate by checking inflationary pressures.

The governor explained that members of the committee agreed that the economy was passing through a difficult phase, adding that the concern was that headline inflation had risen significantly in June.

The committee, he said, noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging down growth.

The CBN governor said the high inflationary trend had culminated in negative real interest rates in the economy, noting that this was discouraging savings.

According to him, members of the committee also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors’ attitude had remained lukewarm, showing unwillingness to bring in new capital under the circumstance.

He said the decision to raise interest rate would give impetus to improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability.

The governor said members were of the opinion that the liquidity of the foreign exchange market would boost manufacturing and industrial output, thereby stimulating the much needed growth.

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

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Minister of Power Pledges 6,000 Megawatts Electricity Generation in Six Months

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Adebayo Adelabu has made a bold pledge to ramp up electricity generation to 6,000 megawatts (MW) within the next six months.

This announcement comes amidst ongoing efforts to tackle the longstanding issue of inadequate power supply that has plagued the country for years.

During an appearance on Channel Television’s Politics Today program, Adelabu said the government is committed to resolving the issues hindering the power sector’s efficiency.

He expressed confidence in the administration’s ability to overcome the challenges and deliver tangible results to the Nigerian populace.

Currently, Nigeria generates and transmits over 4,000MW of electricity with distribution bottlenecks being identified as a major obstacle.

Adelabu assured that steps are being taken to address these distribution challenges and ensure that the generated power reaches consumers across the country effectively.

The minister highlighted that the government has been proactive in seeking the expertise of professionals and engaging stakeholders to identify the root causes of the power sector’s problems and devise appropriate solutions.

Adelabu acknowledged the existing gap between Nigeria’s installed capacity of 13,000MW and the actual generation output, attributing it to various factors that have impeded optimal performance.

Despite these challenges, he expressed optimism that the government’s initiatives would lead to a substantial increase in electricity generation, marking a significant milestone in Nigeria’s energy sector.

Addressing concerns about the recent decline in power generation due to low gas supply, Adelabu assured Nigerians that measures are being taken to rectify the situation.

He acknowledged the impact of power outages on citizens’ daily lives and reiterated the government’s commitment to providing stable electricity supply within the stipulated timeframe.

The Minister’s assurance of achieving 6,000MW of electricity generation in the next six months comes as a ray of hope for millions of Nigerians who have long endured the consequences of inadequate power supply.

With ongoing reforms and targeted interventions, there is optimism that Nigeria’s power sector will witness a transformative change, ushering in an era of improved access to electricity for all citizens.

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Nigeria’s Economic Woes to Drag Down Sub-Saharan Growth, World Bank Forecasts

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The World Bank’s latest report on the economic outlook for Western and Central Africa has highlighted Nigeria’s sluggish economic growth as a significant factor impeding the sub-region’s overall performance.

According to the report, while economic activities in the region are expected to increase, Nigeria’s lower-than-average growth trajectory will act as a hindrance to broader economic expansion.

The report indicates that economic activity in Western and Central Africa is set to rise from 3.2 percent in 2023 to 3.7 percent in 2024 and further accelerate to 4.2 percent in 2025–2026.

However, Nigeria’s growth, projected at 3.3 percent in 2024 and 3.6 percent in 2025–2026, falls below the sub-region’s average.

The World Bank underscores the importance of macroeconomic and fiscal reforms in Nigeria, which it anticipates will gradually yield results.

It expects the oil sector to stabilize with a recovery in production and slightly lower prices, contributing to a more stable macroeconomic environment.

Despite these measures, the report emphasizes the need for structural reforms to foster higher growth rates.

In contrast, economic activities in the West African Economic and Monetary Union are projected to increase significantly, with growth rates of 5.9 percent in 2024 and 6.2 percent in 2025.

Solid performances from countries like Benin, Côte d’Ivoire, Niger, and Senegal are cited as key drivers of growth in the region.

The report also highlights the importance of monetary policy adjustments and reforms in supporting economic growth.

For instance, a more accommodative monetary policy by the Central Bank of West African States is expected to bolster private consumption in Côte d’Ivoire.

Also, investments in sectors such as agriculture, manufacturing, and telecommunications are anticipated to increase due to improvements in the business environment.

However, Nigeria continues to grapple with multidimensional poverty as highlighted by the National Bureau of Statistics.

Over half of Nigeria’s population is considered multidimensionally poor, with rural areas disproportionately affected. The World Bank underscores the need for concerted efforts to address poverty and inequality in the country.

Sub-Saharan Africa as a whole faces challenges in deepening and lengthening economic growth. Despite recent progress, growth remains volatile, and poverty rates remain high.

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Fitch Downgrades China’s Outlook to Negative Amid Real Estate Slump

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Fitch Ratings has downgraded China’s economic outlook to negative, citing concerns over the country’s mounting debt and the ongoing slump in its real estate sector.

This decision casts a shadow over China’s economic recovery efforts and raises questions about the resilience of its financial system in the face of mounting challenges.

The downgrade comes at a critical juncture for China as the government grapples with the fallout from a prolonged downturn in the real estate market, which has long been a cornerstone of the country’s economic growth.

Fitch’s decision underscores the severity of the challenges facing China’s economy and the urgent need for policymakers to implement effective measures to address the underlying issues.

Amid growing uncertainty about the outlook for the world’s second-largest economy, Fitch warned that the Chinese government is likely to accumulate more debt as it seeks to stimulate economic growth and mitigate the impact of the real estate slowdown.

The agency’s negative outlook reflects concerns that China’s debt burden could continue to rise, posing risks to the stability of its financial system.

The real estate sector, which has been a key driver of China’s economic growth in recent decades, has been experiencing a pronounced slowdown in recent months.

This downturn has been exacerbated by government measures aimed at curbing speculative investment and addressing housing affordability concerns. As property prices continue to decline and housing sales stagnate, fears of a broader economic slowdown have intensified.

China’s government has sought to downplay concerns about the impact of the real estate slump on the broader economy, emphasizing its commitment to maintaining stability and pursuing sustainable growth.

However, Fitch’s downgrade suggests that the challenges facing China’s economy may be more significant than previously thought and require a more comprehensive and coordinated policy response.

The negative outlook from Fitch follows a similar move by Moody’s Investors Service in December, highlighting the growing consensus among rating agencies about the risks facing China’s economy.

While financial markets initially showed little reaction to Fitch’s announcement, analysts warn that the downgrade could weigh on market sentiment in the near term, especially as investors await key economic indicators due to be released in the coming weeks.

China’s public debt has surged in recent years, fueled by government stimulus measures aimed at supporting economic growth and offsetting the impact of the COVID-19 pandemic.

With public debt nearing 80% of gross domestic product (GDP) as of mid-last year, according to the Bank for International Settlements, concerns about the sustainability of China’s debt levels have been mounting.

Despite these challenges, China’s sovereign bond market remains relatively insulated from external pressures, with foreign ownership accounting for a small fraction of total holdings.

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