- Asian Equities, Yen Maintain Declines After BOJ
Asian stocks were mostly lower after a five-day rally as the Bank of Japan cut its inflation forecast while keeping stimulus unchanged, and investors assessed a plan to overhaul U.S. taxes.
Japanese stocks headed for their first decline in six days and the yen remained lower. Shanghai stocks resumed declines as regulatory concerns grew. The dollar dropped as the Mexican peso and Canadian dollar jumped, reversing earlier declines, after the White House dispelled speculation over the fate of Nafta. Market reaction in the U.S. to Donald Trump’s tax proposal suggested much of the benefits were already reflected in asset prices.
The BOJ kept its policy settings unchanged, while lowering its inflation forecast, underscoring that any exit from its unprecedented monetary easing remains far away. Governor Haruhiko Kuroda said last week that the accommodative policy and asset purchases will continue for some time because inflation is “quite sluggish.”
Global shares are trading at a record high on optimism for improving global economic growth. The much-anticipated plan for U.S. tax changes, including cuts that would benefit businesses, the middle class and certain high-earning individuals, left unanswered questions about whether it would be paid for, or how.
Investors are also turning to earnings for more clues on the global economy, with Thursday offering results from some of the biggest companies. The heavyweights include PetroChina Co. and Deutsche Bank AG, with Alphabet Inc. and Dow Chemical Co. on the menu for the U.S.
Concerns over China’s markets are resurfacing after a brief pause, as the government intensified its focus on tackling risks in the financial system. Stocks in China have lagged all but three national benchmarks in the world this month, struggling to keep up with increasing global risk appetite amid an accelerating campaign against leverage.
Here are some key upcoming events investors are watching:
- The European Central Bank is up next. ECB officials have indicated little chance of a policy change on Thursday. The focus will be on any signals from President Mario Draghi that the central bank is debating an exit from its extraordinary stimulus.
- U.S. GDP is due Friday. It’s projected to show the economy expanded at a 1 percent annualized rate in the first quarter, the weakest pace in a year.
Naira Exchange Rate Improves as CBN Plans to Flood Economy With $20 Billion Diaspora Remittances
The Naira to US Dollar exchange rate improved by N10 to N490 on Tuesday following the Central Bank of Nigeria’s new directive that allows recipients of diaspora remittances to receive their fund in foreign currency (US Dollar) or via their ordinary domiciliary account.
The move was after the apex bank blamed the parallel market for the wide foreign exchange rate and cautioned analysts for using speculative rates as the real Naira/US dollar rate.
Therefore, the apex bank decided to inject $20 billion annual diaspora remittances into the real sector of the economy and hurt the activities of unscrupulous individuals at the parallel market.
Investors King expects this to gradually moderate the nation’s foreign exchange rate against global counterparts, deepen business activities and fast track economic recovery.
CBN Amends Forex Receipt as Naira Hits Record Low
In a bid to simplify and finally liberalize the receipt of diaspora remittances, the Central Bank of Nigeria (CBN) has amended its receipt procedures to allow beneficiaries of diaspora remittances receive such inflows in foreign currency (US Dollars).
The apex bank stated in a circular signed by Dr. O.S. Nnaji, Director Trade and Exchange Department, CBN.
In the circular, recipients of remittances can now receive funds in either foreign currency cash (US Dollars) or into their ordinary domiciliary account.
While the International Money Transfer Operators (IMTOs) will henceforth receive diaspora remittances in foreign currency through the designated bank of their choice.
The CBN plans to ease forex scarcity, speed up the recovery process and checkmate the activities of speculators and hoarders at the black by injecting diaspora remittances estimated at about $20 billion per year into the real economy.
This is expected to not just improve business activities but also moderate foreign exchange rate from the current N500/US$ and move the central bank a step closer to unifying the nation’s foreign exchange rates.
The circular partly reads “In an effort to liberalize, simplify and improve the receipt and administration of diaspora remittances into Nigeria, the Central Bank of Nigeria (CBN) wishes to announce as follows;
“Beneficiaries of Diaspora Remittances through International Money Transfer Operators (IMTOs) shall henceforth receive such inflows in foreign currency (US Dollars) or into their ordinary domiciliary account. Such recipients of remittances may have the option of receiving these funds in foreign currency cash (US Dollars) or into their ordinary domiciliary account.”
Naira Devaluation Pushed Exchange Rate to N500/US$ at Black Market
Naira to United States Dollar exchange rate plunged to N500 on Monday after the Central Bank of Nigeria (CBN) devalued the Naira by N6 on Friday amid growing scarcity.
At the current rate, the local currency has lost N140 per US dollar when compared with N360 it was sold in the same month of 2019 and N5 compared to N495 it exchanged on Friday.
In an effort to ease pressure on the nation’s foreign reserves and unify foreign exchange rates in line with the International Monetary Fund and the World Bank’s requirement for loans, the CBN devalued the official exchange rate by N6 from N379/US$ to N385/US$ and directed bureau de change operators to sell at N392/US$, up from N386/US$.
However, with importers and businesses looking to meet the usual high demand for goods in December pushing demand for the United States dollar off the roof, Naira’s value has continued to plummet despite efforts by the CBN to prop up its value.
Against the British Pound, the Naira declined to N650, down from N620 it exchanged last week. This depreciation continues against the Euro common currency as the local currency declined to N585.
Lack of liquidity due to the weak foreign reserves, low oil prices and weak demand for the commodity amid production cuts by OPEC and allies is hurting CBN’s ability to effectively intervene at the nation’s foreign exchange markets.
The apex bank usually sells forex to dealers to ease scarcity and facilitate trades. However, lack of foreign revenue generation has forced the CBN to reduce its weekly forex sales to $10,000 per bureau de change operator despite reopening of the economy pushing demand for forex further up.
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