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Recession: It’s up to You, CBN Tells Government

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  • Recession: It’s up to You, CBN Tells Government

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) yesterday admitted that its monetary policy tool has run out of options and that the economy could only get the needed support from effective implementation of fiscal policies.

The verdict formed the basis for the committee’s decision to retain benchmark rate at 14 percent and this confirms yesterday’s exclusive report by The Guardian about impending depression as there is no harmony between monetary and fiscal policies of government.

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence the economy. It is the sister strategy to monetary policy with which the central bank influences money supply.

CBN’s statement sends a wrong signal to the economy,” Dr. Franklin Ngwu, who teaches Economics at the Lagos Business School, said by telephone.

“There are good points to what Governor Godwin Emefiele is saying but there is supposed to be proper synergy between the CBN and government to bring confidence to economic agents and investors.”

Ngwu argues that giving “impression of exhaustion” shows that the CBN and fiscal policy makers are not prepared to bring robust economic policies to address the current economic challenges.

The National Bureau of Statistics (NBS) Monday announced a third negative growth in three quarters. The Gross Domestic Product (GDP) — one of the primary indicators used to gauge the health or size of a country’s economy — for third quarter (Q3) of the year shrank by -2.24 percent after recording -2.06 per cent in the preceding quarter ending June 30, 2016.

The apex bank after its committee’s meeting Tuesday retained all major rates. It kept the Monetary Policy Rate (MPR) — the minimum rate banks borrow from the CBN — at 14 per cent; Cash Reserve Ratio (CRR), 22.5 per cent; and Liquidity Ratio, 30 per cent. 
 The asymmetric window (representing allowance for banks’ lending) was left at +200 and -500 basis points around the MPR. This means the apex bank will lend to banks at 16 per cent and borrow from them at nine per cent.

This is the second time apex bank is keeping main interest rate on hold since the July increase to 14 per cent, as it strengthens its efforts to battle the galloping inflation.Emefiele, said inflation was largely structural and so the CBN’s current tight monetary policy stance combined with an improved agricultural harvest should limit growth prices of goods and services.

He said he would expect fiscal policy to do most of the work of improving Nigeria’s growth performance.“Considering the importance of price stability and being mindful of the limitations of monetary policy in influencing output and employment under the conditions of stagflation, committee decided unanimously in favour of retaining the current stance of monetary policy,” he said.

Meanwhile, the committee has urged government to devise strategies to settle its contractual obligations, which sit across all sectors of the economy.“These accumulated debts have slowed business activities of economic agents; most of who are indebted to the banking system, thus compromising the integrity of the financial system.

“As we are about to enter 2017, there is need for the Muhammadu Buhari-led Federal Government to quickly inflate the economy, there is a most urgent need to pay all outstanding salaries of workers in Federal, State and Local government.

“The economic team should be strengthened with more capable hands with a clear economic direction for the country urgently provided. “For a start, we need to clearly identify our areas of comparative advantage which interestingly is in Agriculture and informal economy and then robustly support each of our six geo-political regions to specialise in two or three. Nigeria is an economy with two limitedly sub-economies —the formal 25 percent and the informal, about 75 percent.”

Ngwu advised the CBN to rethink its approach in policy formulation and implementation while government policies should be evaluated and approved based on their job-creating impact. “Outside good economic policies, of fundamental importance is the need to moderate the tone of governance from the current perception of division, acrimony and negativity to that of hope, unity and prosperity,” said Dr Ngwu.

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 Oil Approaches $70 Per Barrel on Friday

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Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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