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Manufacturers Back Finance Minister’s Call For Interest Rate Cut

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The Minister of Finance, Mrs. Kemi Adeosun, has called on the Central Bank of Nigeria to lower interest rate so that the government can borrow domestically to boost the economy without increasing debt servicing costs.

While reacting to the minister’s call, the President, Manufacturers Association of Nigeria, Dr. Frank Jacobs, said that a cut in interest rate would be the best thing to happen to the economy.

“He said, “It will be the best thing that has ever happened to the economy, particularly the manufacturing sector.

“It is what we have been agitating for since and if the interest rate is brought down, it will be the best decision in the current economic dispensation.”

The government is also planning an “immediate large injection of funds” through asset sales, advance payments for licence renewals and infrastructure concessions, the Minister of Budget and Economic Planning, Senator Udo Udoma, said.

Adeosun said she was working with the Debt Management Office, Nigeria Sovereign Investment Authority and the pension industry to issue an infrastructure bond to raise money for road and housing projects.

She urged the central bank to reconsider its July interest rate increase, which it implemented to help support the naira and attract foreign investment.

The central bank is due to announce its next rate decision today (Tuesday) after the conclusion of its Monetary Policy Committee meeting, with some economists predicting that it will keep the key interest rate at 14 per cent, while others maintain that a cut is inevitable.

Adeosun told CNBC Africa, “We need lower interest rates, because when we are borrowing and interest rates go up, it increases our cost of debt service and it reduces the amount of money that is available to spend on capital projects.

“The attempt was to manage inflation and the trade-off for the economy right now is what is a bigger problem: Is it growth or inflation? For me it is growth. I would rather seek growth. We can manage inflation. I think for us, at the moment in the Nigerian economy, growth is the most important thing.”

Udoma told a business conference that the government planned asset sales to inject more funds into the economy but gave no details. The government has spent almost N800bn on capital expenditures since the budget was approved in May, officials told Reuters.

The minister also said the government had almost finished preparing a bill for the National Assembly to approve emergency powers for President Muhammadu Buhari to improve the business climate.

Adeosun said some adjustment was needed to narrow the spread between the official and black market currency rates, which is running at 25 per cent since the central bank floated the naira.

“We still need to make some necessary adjustments to ensure that the spread is narrow, so that we have true price discovery,” she said.

Meanwhile, the Finance minister said the country had received commitments to its planned $1bn Eurobond from international investors, which it aims to issue before the end of the year, but insisted that pricing would be key.

The government is currently seeking advisers and book runners and is currently accepting proposals from international and local banks for the bond sale, according to Bloomberg.

“We already have quite strong indications and indeed we had some commitments. Even though we weren’t doing a deal, we already have commitments to our bond offer; so, we are very confident that it is just a question of pricing,” Adeosun said.

The minister also said the regulators had approved plans to enable the investment of as much as $20bn of pension funds in the development of infrastructure.

The Securities and Exchange Commission and the National Pension Commission have approved “a new instrument that will allow pension funds to invest in infrastructure bonds,” Adeosun said at a meeting of business leaders in Abuja on Monday.

“That’s what will drive, for example, our social housing and our roads programme outside the budget,” she added.

Renowned economist and Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said in a telephone interview with one of our correspondents that he and other experts had before now stressed the need to reduce the interest rate.

He said, “There is no other way but to reduce the interest rate. During recession, Britain brought down interest rate; and in the US during the recession, what did they do? They brought down interest rate as well. So, we need to bring down the interest rate.”

The Director-General, West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, who lent his voice to the call for a cut in interest rate, said, “That is the only way to fast-track the recovery of the economy. The interest rate must be reduced to close to single digit, if not single digit, in order to stimulate the real sector. Now, it is an average of 25 per cent and that is too high.

“The real sector is dead now; when you are in a recession and the real sector is dead, then the recession will last for long.”

Ekpo said the Monetary Policy Rate, which is the benchmark interest rate, should be reduced to 10 per cent from the current 14 per cent so that the lending rate would be around 13 to 14 per cent.

The Monetary Policy Committee of the CBN had at the end of its meeting in July raised the MPR to 14 per cent from 12 per cent.

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.

Crude Oil

Brent Crude Rises to $69 on IEA Report

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Oil prices rose after the release of the International Energy Agency’s (IEA)  closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.

Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.

The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.

However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.

Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.

“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.

In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.

“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.

The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.

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OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply

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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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Oil Rises Over Concerns of Fuel Shortages

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Oil prices rose on Tuesday, as lingering fears of gasoline shortages due to the outage at the largest U.S. fuel pipeline system after a cyber attack brought futures back from an early drop of more than 1%.

Brent crude futures rose 35 cents, or 0.5%, to $68.67 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose 49 cents, or 0.8%, to $65.41.

Benchmark gasoline futures prices rose 1 cent to $2.14 a gallon.

On Monday, Colonial Pipeline, which transports more than 2.5 million barrels per day (bpd) of gasoline, diesel and jet fuel, said it was working to restore much of its operations by the end of the week.

Right now there’s a generalized anxiety premium being built into prices because of Colonial and it’s keeping a floor under the market,” said John Kilduff, partner at Again Capital LLC in New York.

Fuel supply disruption has driven gasoline prices at the pump to multi-year highs and demand has spiked in some areas served by the pipeline as motorists fill their tanks.

Traders booked at least four tankers to store refined oil products off the U.S. Gulf Coast refining hub after a cyber attack that knocked out the pipeline, shipping data showed on Tuesday.

North Carolina, the U.S. Environmental Protection Agency and Department of Transportation issued waivers allowing fuel distributors and truck drivers to take steps to try to prevent gasoline shortages.

OPEC on Tuesday raised its forecast for demand for its crude by 200,000 bpd and stuck to its prediction of a strong recovery in global oil demand this year as growth in China and the United States counters the coronavirus crisis in India.

Meanwhile, the rapid spread of infections in India has increased calls to lock down the world’s second-most populous country and the third-largest oil importer and consumer.

India’s top state oil refiners have already started reducing runs and crude imports as the new coronavirus cuts fuel consumption, company officials told Reuters on Tuesday.

On the bullish side for crude, analysts are expecting data to show U.S. inventories fell by about 2.3 million barrels in the week to May 7 after a drop of 8 million barrels the previous week, a Reuters poll showed.

Gasoline stocks are expected to have fallen by about 400,000 barrels, analysts estimated ahead of reports from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday.

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