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RBA keeps Interest Rates Unchanged as Strong Housing Market Outweighs CPI

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  • RBA keeps Interest Rates Unchanged as Strong Housing Market Outweighs CPI

Reserve Bank of Australia Governor Philip Lowe kept interest rates unchanged, signaling he’s prepared to tolerate weak inflation to avoid further stoking “briskly” rising property prices and household debt.

Lowe opted not to react to soft consumer prices growth last quarter and held the cash rate at a record-low 1.5 percent, as predicted by 22 of 28 economists surveyed and in line with money market bets. The new governor’s well-flagged concerns about easy money’s risks to financial stability and asset bubbles has led traders to scale back bets on a reduction next year as well.

“The economy is growing at a moderate rate,” Lowe said in his statement. “The large decline in mining investment is being offset by growth in other areas, including residential construction, public demand and exports.”

The governor’s confidence in letting inflation languish well below target stems from stronger economic growth and lower unemployment, as well as a rebound in commodities and an improved outlook in key trading partner China; Lowe has already said he and his colleagues aren’t “inflation nutters.” The decision also fits into a growing global consensus among central bankers that monetary policy is approaching the limits of its effectiveness.

The Australian dollar rose, buying 76.57 U.S. cents at 3:29 p.m. in Sydney compared with 76.19 cents before the decision. Money-market bets for a 2017 rate cut were pared back to a maximum one-in-three chance, from about 42 percent prior to the decision.

“The bank’s forecasts for output growth and inflation are little changed from those of three months ago,” said Lowe. “Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening. Inflation is expected to pick up gradually over the next two years.” The RBA will release its updated growth and inflation forecasts Friday.

Lowe said economic conditions in China “have steadied recently,” supported by an expansion in infrastructure and property construction, while noting “medium-term risks to growth remain.” He reiterated that higher commodity prices have supported a lift in Australia’s terms of trade, referring to export prices relative to import prices. The governor injected a slightly gloomier tone on household consumption, saying it appeared to have slowed “a little.”

Aussie Relief

Lowe reiterated the RBA’s now standard line that an appreciating currency could complicate the economy’s adjustment from resource investment.

The central bank may get some relief from the local dollar, the best performing Group of 10 currency since June 30, if its U.S. counterpart raises rates in December. A lower Aussie would provide a tailwind to services exports like tourism and education that are highly sensitive to the currency and key growth drivers for the post-mining boom economy.

Given his signals on financial stability, Lowe would be loathe to further inflate Sydney house prices — already up more than 50 percent in the past four years — or increase household debt that’s soared to a record 158 percent.

That’s particularly so when the economy expanded an annual 3.3 percent in the second quarter, even though much of that came from labor-light resource exports. The jobless rate has fallen to 5.6 percent, though that level is also flattered by a falling participation rate and high part-time employment.

Coal Comeback

Then there’s commodities: the terms of trade are rising for the first time in more than two years. Coking coal has surged more than 200 percent this year as output from China, the world’s biggest miner, tumbles under government pressure to cut overcapacity. Iron ore, Australia’s biggest export, has rebounded almost 50 percent.

Australia’s core annual inflation averaged 1.5 percent in the third quarter, well below the central bank’s 2 percent to 3 percent target range. Record-low wage growth, imported disinflation, fierce local retail competition and spare capacity in the economy all suggest consumer prices are unlikely to rebound soon; as a result, many economists view the RBA as retaining an easing bias.

“The Reserve Bank says inflation has bottomed and that the economy is set to grow at a faster-than-normal pace,” said Craig James, a senior economist at the securities unit of Commonwealth Bank of Australia. “Rate cuts are off the agenda for now.”

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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Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

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Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

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Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

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The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

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CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

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Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

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