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Bank of Korea Holds Rate Steady, Sees Slightly Faster Growth

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Korean won
  • Bank of Korea Holds Rate Steady, Sees Slightly Faster Growth

South Korea’s central bank held its key interest rate steady on Thursday, saying economic growth continued to recover as exports and investment improve.

In its policy statement, the Bank of Korea said the economy would grow slightly faster than the 2.5 percent projected in January, while inflation would just exceed its previous forecast of 1.8 percent. It didn’t provide new figures in the statement.

The BOK said the global economic recovery has expanded, but the pace of improvement in exports and domestic demand is expected to be limited, citing uncertainty over trade relations and weak improvement in households’ real purchasing power.

Citing contained inflation, the BOK said it would maintain its accommodative policy stance while also monitoring geopolitical risks, household debt and the Federal Reserve’s policy normalization.

The central bank releases an updated quarterly economic outlook for 2017 later Thursday.

“Positive exports in the first quarter seems to be behind the BOK projecting higher growth, but I think the economy probably has passed its peak,” said Park Jong-youn, a fixed-income analyst for NH Investment & Securities in Seoul. “With China limiting tourism to South Korea, unless oil prices rise fast, the pace of economic growth will be gradual.”

The decision to keep the seven-day repurchase rate at a record-low 1.25 percent, unchanged since June 2016, was forecast by all 23 analysts surveyed by Bloomberg.

The central bank may be set to continue its pause for a while longer. Record household debt and the Federal Reserve’s tightening reduce the likelihood of further easing in Korea, while a rate hike would add to the repayment burden of many consumers. The debt hit 1,344 trillion won ($1.2 trillion) at the end of last year, a level the central bank already sees as limiting consumption.

Governor Lee Ju-yeol will speak to the media later today, and investors will scrutinize his comments on the possible market impact of rising geopolitical tensions, as well as the likelihood of the country being labeled a currency manipulator by the U.S. Treasury this month.

Finance Minister Yoo Il-ho said this week that the economy performed better than expected in the first quarter as exports, production, and investment all recovered. Overseas shipments, which account for about half of Korea’s gross domestic product, expanded for a fifth month in March, and inflation accelerated at the fastest pace in almost five years.
Retail sales rose in February from the previous month, when they contracted.

The won has weakened about 1.5 percent in April, the biggest loss among Asian currencies, as investors worried the U.S. may consider military action to contain North Korea’s nuclear ambitions. The finance ministry said Wednesday that capital flows remain stable but authorities will take prompt action if that changes. Lee has previously said North Korea tensions have a limited impact on markets.

Of 27 analysts surveyed by Bloomberg, 21 forecast no change in the policy rate for the rest of the year. Three see a cut to 1 percent, while three see an increase to 1.5 percent.

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.

Markets

OPEC Agrees to Increase Oil Supply by 500,000 Barrels Per Day Ahead of Surge in Demand

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Nigeria's economic Productivity

OPEC and allies finally agreed to ease their 7.7 million barrels per day production cut by 500,000 barrels per day starting from January 2021.

This will now bring the oil cartel’s total production cuts to 7.2 million barrels per day starting from next year.

Oil prices rose after the news as the market believed the approval of Pfizer COVID-19 in the United Kingdom will kick start a series of approvals and helped restore confidence, increase business activities and demand for the commodity across the globe.

After the outcome of the meeting was made public on Thursday, Brent Crude Oil against which Nigerian oil is priced gained 1.35 percent on Friday after gaining 1.4 percent on Thursday to $49.37 per barrel at 11.35 am Nigerian time on Friday.

The US West Texas Intermediate gained 1.29 percent to $46.23 barrel on Friday.

500,000 bpd from January is not the nightmare scenario that the market feared, but it is not what was really expected weeks ago,” said Rystad Energy senior oil markets analyst Paola Rodriguez Masiu. “Markets are now reacting positively and prices are recording a small increase as 500,000 of extra supply is not deadly for balances,” she added.

Investors King increased business sentiment in the energy sector to boost investment, increase activity in the sector and most important improve crude oil demand enough to accommodate the 500,000 barrels per day extra that would be hitting the global market starting from January.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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Oil

The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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