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As MPC Meets Tomorrow, Analysts Predict Rates Retention to Further Check Inflation

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  • As MPC Meets Tomorrow, Analysts Predict Rates Retention to Further Check Inflation

As the monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) converge in Abuja tomorrow for its maiden meeting this year, economic analysts have predicted that its members would vote for retention of the policy rates.

Specifically, the analysts believe the best way the CBN could go with the current challenges in the economy is to hold the monetary policy rate (MPR) so as not exacerbate the rising inflation, currently at 18.55 per cent, especially with widespread speculation of fuel price increase. It is one of the analysts’ view that, if the MPC decides against policy shift, the apex bank could avoid the wrath of the real sector, which is already groaning under monetary policy-induced challenges.

The MPR, which is the benchmark interest rate was retained at 14 per cent by MPC at its 253rd meeting in November last year. It predicated its decision on the need to mitigate the fragile macroeconomic conditions and the strong headwinds confronting the economy, particularly the implications of the twin deficits of current account and budget deficits. Besides retaining the MPR, the MPC also held the banks’ cash reserve requirement (CRR) and liquidity ratio (LR) at 22.5 per cent and 30 per cent respectively while further maintaining the Asymmetric Window at +200 and -500 basis points around the MPR.

The Chief Economist and Managing Director, Global Research, Africa, Standard Chartered Bank, Razia Khan, who presented the bank’s position, noted that “The absence of any further policy measures on FX liberalisation suggests that the CBN will be quite comfortable keeping interest rates on hold at next week’s MPC meeting.”

“Although inflation has been pressured higher, further tightening would be more plausible if there was some expectation that it might trigger a positive response from offshore portfolio investors, and bring about greater FX inflows. These plans look to have been put on the backburner for the moment,” Khan added.

Asking, “Could the CBN cut interest rates?”, Khan said, “We think not, despite weak growth.”

According to her, “Inflation in y/y terms is likely to remain elevated for a while still. There is also some disquiet about the recent spike in money supply, and how much of an inflation threat it represents. The CBN may well have to wait for evidence of a pronounced base effect driving y/y inflation down, before it can think about easing policy.”

In his analysis, The Chief Executive Officer, The CFG Advisory, Adetilewa Adebajo, stated that the main challenge for the MPC this New Year is “taming the inflation monster.”

“At 18.6 per cent inflation is at a 10-year high. It is also likely that 2016 Q4 GDP growth will close around -2 per cent in negative territory. Since there is a strong historical correlation in Nigeria between positive GDP growth and lower rates of inflation, the MPC will have to adapt inflation reduction policies to expect positive GDP growth in 2017.”

Adebajo contended that, “The prospects of increasing interest rates to tame inflation might not go down well with the Real Sector, but the impending increase in fuel pump prices and the related impact on spiking inflation will present a dilemma for the MPC. While a pre-emptive rise in rates might be strongly considered, it is likely that the MPC will hold rates and maintain status quo.”

Besides, the economist noted that, “The markets will also look for comments from the MPC, in an effort to restore confidence and harmonize the FX markets.”

To the Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, “The outcome of the MPC meeting is the most difficult to predict in recent times.”

According to him, “Judging from the antecedents of this Committee, the exchange rate volatility and high inflation would naturally signify an increase in interest rate and other macro-prudential ratios in the bid to fight inflation and attract supply of foreign exchange into the economy by ensuring a positive real return on portfolio investments.”

Ademola, however, added that, “Since these actions have not been so successful over the year in curbing inflation and exchange rate volatility, it would be very reasonable to consider monetary accommodation. Especially when it appears that the high interest rate with its consequent high cost of funds and high cost of production may be the main cause of inflation.”

“A reduction in benchmark interest and a systematic release of liquidity into the economy would help domestic production capacity and boost economic activities.

Due to this seemingly conflicting situations, I think the MPC will hold rates constant,” he posited.

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

Crude Oil Pulled Back Despite Joe Biden Stimulus

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Crude Oil Pulled Back Despite Joe Biden Stimulus

Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.

Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.

On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.

OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”

Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.

The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.

Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.

But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.

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Crude Oil

OPEC Says Uncertainties Remain High in 2021

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OPEC Says Uncertainties Remain High in 2021

The Organization of the Petroleum Exporting Countries (OPEC) on Thursday said global uncertainties remained high going forward in 2021 but kept its oil demand forecast unchanged.

In the cartel’s latest oil outlook for 2021, oil demand is expected to increase by 5.9 million barrels per day year on year to 95.9 million barrels per day. The prediction was unchanged from December’s assessment.

However, OPEC and allies, said: “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.

Crude oil rose to $57 per barrel this week after incoming US President Joe Biden announced it would inject $1.9 trillion stimulus into the world’s largest economy.

But the recent rally in the commodity and stimulus announcement is expected to boost US crude oil output and disrupt OPEC+ production cuts strategy for the year.

The 2021 supply outlook is now slightly more optimistic for U.S. shale with oil prices increasing, and output is expected to recover more in the second half of 2021,” OPEC said.

Still, OPEC, in its forecast “assumes a healthy recovery in economic activities including industrial production, an improving labour market and higher vehicle sales than in 2020.”

“Accordingly, oil demand is anticipated to rise steadily this year supported primarily by transportation and industrial fuels,” the group said.

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Brent Crude Oil Rose to $56.25 Per Barrel

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Brent Crude Oil Rose to $56.25 Per Barrel

Oil price surged following the declaration of Joe Biden as the President-elect of the United States of America last week after Trump’s mob invaded Capitol to disrupt a joint Senate session.

Also, the large drop in US crude inventories helped support crude oil price to over 11 months despite the second wave of COVID-19 crushing the world from Asia to Europe to America.

Brent crude oil, against which Nigerian Crude oil is priced, rose to $56.25 per barrel on Friday before pulling back to $55.422 per barrel on Monday during the London trading session.

Experts attributed the pullback to the rising number of COVID-19 cases in Asia with about 11 million people already locked down in Hebei province in China.

Covid hot spots flaring again in Asia, with 11 million people (in) lockdowns in China Hebei province… along with a touch of FED policy uncertainty has triggered some profit taking out of the gates this morning,” Stephen Innes, chief global market strategist at Axi, said in a note on Monday.

China, the world’s largest importer of crude oil, has joined the United Kingdom and others declaring full or partial lockdown to curb the second wave of COVID-19.

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