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.
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.
Oil prices have rebounded strongly over the last few days – up around 10% from the lows – buoyed by the prospect of a lower price cap on Russian crude
By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
We’re seeing green flashing across the board on Thursday, with sentiment buoyed by positive signals on Fed rate hikes and China’s Covid response.
While it could be argued that Jerome Powell’s comments on Wednesday were relatively balanced – slower tightening now but rates high for longer – the last year has proven that anticipating the path of inflation even a short period ahead is incredibly difficult. Knowing what the Fed intends to do next is far more valuable than what it thinks it may do 6-12 months down the line.
And anything that is perceived to reduce to possibility of an interest rate recession is going to be a positive for equity markets. The Fed has every opportunity to tighten more in the months ahead if the data doesn’t play ball. What’s far more difficult is undoing the damage caused by moving too fast now with little to no visibility on how impactful past tightening has been.
The signals coming from China also look very positive. While we shouldn’t expect a dramatic shift in policy from the leadership, particularly before the March Congress, any modest softening in its Covid-zero policy will and should be welcomed. The approach has been extremely damaging to growth and confidence and the protests highlight how public opinion towards it is changing.
We shouldn’t be naive to the fact that a move away from the policy won’t be easy and there’ll be plenty of setbacks. But it’s certainly a step in the right direction that, along with the measures announced to revive the property market, could put the economy on a much better path.
A huge few days for oil markets
Oil prices have rebounded strongly over the last few days – up around 10% from the lows – buoyed by the prospect of a lower price cap on Russian crude, another large production cut from OPEC+ this weekend, and China’s evolving Covid stance. There remains considerable uncertainty surrounding all of the above though which will likely ensure prices remain volatile going into the weekend. That could carry more risk than normal if the OPEC+ meeting does go ahead as planned on Sunday and the EU hasn’t agreed to the price cap level by the close of play Friday. The range of possibilities on these two things alone is huge which will make rumours and speculation over the coming day or two all the more impactful.
Gold testing range highs
Gold bulls were particularly happy with Powell’s comments on Wednesday with the yellow metal rallying strongly to trade at the upper end of its recent range. It faces strong resistance around $1,780 though which was a significant level of support in the first half of the year. With so much data to come over the next day or so, it may not prove particularly resilient if traders are given further hope that rates will rise more slowly and peak lower.
Some relief for cryptos
The risk relief rally is coming at just the right time for bitcoin, helping it to recover from the lows to trade around $17,000. This is around the highs of the last few weeks since it settled after its latest plunge. Whether it will be enough to revive interest in the cryptocurrency, I’m not sure. The FTX fallout is continuing to weigh heavily on the space and the prospect of more contagion or scandals is hard to ignore.
Oil Revenue into Foreign Reserve Dropped From $3bn Monthly in 2014 to Zero in 2022
The official foreign exchange receipt from crude oil sales into Nigeria’s official reserves has dried up steadily from above US$3.0 billion monthly in 2014 to an absolute zero dollar today, the Central Bank of Nigeria (CBN) governor, Godwin Emefiele disclosed.
Speaking at the 57th annual bankers’ dinner organized by the Chartered Institute of bankers of Nigeria (CIBN) in Lagos, the CBN governor noted that there has been a significant loss in foreign reserves due to the naira’s struggle and the rise in demand for forex.
He added that the sharp increase in the number of Nigerians who are seeking education in foreign countries particularly the UK has resulted in an unprecedented demand for foreign exchange.
According to him, the number of student visas issued to Nigerians by the UK alone has increased from an annual average of about 8,000 visas as of 2020 to nearly 66,000 in 2022.
Emefiele also lamented about the level of crude oil theft in Nigeria which has significantly affected the country’s oil production. He noted that crude oil theft has adversely impacted the Country’s foreign exchange reserves.
Investors King had earlier reported that Nigeria has lost its coveted position as Africa’s largest oil producer after oil production dropped below the mark of 1 million barrels per day.
Nigeria currently trails Angola, Libya and Algeria to the fourth position.
Meanwhile, on the Naira-4-Dollar scheme which the CBN introduced to boost migrant remittances into the Nigerian economy, the CBN governor noted that the scheme has largely been successful.
“I am happy to note that, so far, the Naira-for-Dollar scheme has been successful in increasing remittance inflows through our registered International Money Transfer Organisation (IMTOs),” he said.
Emefiele also noted that the introduction of the National Domestic Card Scheme (NDCS) will help to reduce the operating cost incurred by commercial banks while using foreign cards.
It could be recalled that the CBN earlier announced that it planned to introduce Nigeria-made transactional cards to replace well-known cards such as Visa and MasterCard.
Crude Oil Gained 2% as U.S. Oil Inventories Dipped Last Week
Crude oil appreciated on Tuesday on signs global supply is declining amid better-than-expected optimism on Chinese economic recovery and a weaker dollar.
But the likelihood that OPEC+ will leave output unchanged at its upcoming meeting limited the gains.
Brent crude futures rose $2.06, or 2.48% to $85.09 per barrel by 1044 GMT. The more active February Brent crude contract rose by 2.02% to $85.95.
U.S. West Texas Intermediate (WTI) crude futures climbed $1.69, or 2.16%, to $79.89.
Support followed expectations of tighter crude supply.
U.S. crude oil stocks dropped by 7.9 million barrels in the week ended Nov. 25, according to market sources citing American Petroleum Institute figures on Tuesday.
Official figures are due from the U.S Energy Information Administration on Wednesday.
And the International Energy Agency expects Russian crude production to be curtailed by some 2 million barrels of oil per day by the end of the first quarter next year, its chief Fatih Birol told Reuters on Tuesday.
On the demand side, further support came from optimism over a demand recovery in China, the world’s largest crude buyer.
China reported fewer COVID-19 infections than on Tuesday, while the market speculated that weekend protests could prompt an easing in travel restrictions.
Guangzhou, a southern city, relaxed COVID prevention rules in several districts on Wednesday.
A fall in the U.S. dollar was also bearish for prices. A weaker greenback makes dollar-denominated oil contracts cheaper for holders of other currencies, and boosts demand.
Fed Chair Jerome Powell is scheduled to speak about the economy and labour market on Wednesday, with investors looking for clues about when the Fed will slow the pace of its aggressive interest rate hikes.
Capping gains, the OPEC+ decision to hold its Dec. 4 meeting virtually signals little likelihood of a policy change, a source with direct knowledge of the matter told Reuters on Wednesday.
“Market fundamentals favour another cut, especially given the uncertainty over China’s COVID situation … Failure to do so risks sparking another selling frenzy,” said Stephen Brennock of oil broker PVM.
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