- Australia Holds Rates as Inflation Speeds Up, Stimulus Signs Mount
Australia kept interest rates unchanged as faster inflation and signals of looming fiscal stimulus combine with an upswing in global growth.
“Above-trend growth is expected in a number of advanced economies,” Reserve Bank of Australia Governor Philip Lowe said in a statement announcing the decision Tuesday. “The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income.”
The central bank also left the cash rate at a record-low 1.5 percent — as expected by all 28 economists surveyed by Bloomberg — to allow regulatory rules targeting riskier property loans to take effect amid hot housing markets in Sydney and Melbourne.
The lending crackdown is designed to discourage households — already among the world’s most indebted — from gearing up further after east-coast property prices doubled since 2009. The RBA fears that, in a weak wage growth and with inflation still subdued, over-leveraged borrowers could slash spending in an economy where consumption accounts for more than half of output.
“Growth in housing debt has outpaced the slow growth in household incomes,” Lowe said. “The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness.”
The Australian dollar edged higher, buying 75.42 U.S. cents as 3:18 p.m. in Sydney compared with 75.37 cents prior to the decision.
“The bank’s forecasts for the Australian economy are little changed. Growth is expected to increase gradually over the next couple of years to a little above 3 percent,” Lowe said in a preview of the central bank’s quarterly update due Friday. “Growth in consumption is expected to remain moderate and broadly in line with incomes. Non-mining investment remains low as a share of GDP and a stronger pick-up would be welcome.”
Australia’s government has given itself leeway to finance projects like road and rail by redefining debt in its May 9 budget. Treasurer Scott Morrison is seeking to distinguish between good debt — used for productivity enhancing or income-generating infrastructure — and bad debt used to fund things like welfare and health. That would ease the constant pressure on the RBA to support the economy since late 2011.
Stimulus is needed as wage growth remains at a record low, a product of the economy adjusting to regain competitiveness as the unwinding of a mining investment boom nears its completion. While inflation returned to the bottom end of the RBA’s 2 percent to 3 percent target in the first three months of the year after spending nine quarters below it, the key core measure didn’t.
Moreover, there’s little sign on the horizon of fatter pay packets to fuel consumer prices as the jobless rate holds at 5.9 percent and under-employment remains elevated, signaling plenty of slack in the labor market.
“The unemployment rate is expected to decline gradually over time,” said Lowe. “Wage growth remains slow and this is likely to remain the case for a while yet.”
The nation’s retailers have also been trapped in a deflationary environment as global brands entering the market drive down prices; they are likely to have to steel themselves anew following the announcement Amazon.com Inc. is heading Down Under.
On the upside, Australia is the most China-dependent economy in the developed world and is benefiting from demand in the world’s No. 2 economy for everything from commodities to education to tourism. Australia had a record 1.2 million visitors from China last year.
Business conditions have also remained strong, even as the Aussie dollar has risen more than 4 percent this year, one of the best performers in the Group of 10 currencies tracked by Bloomberg. That’s a headwind for services like tourism and education that must compete internationally.
The governor reiterated his long standard comment that an appreciating exchange rate “would complicate” the economy’s transition from a mining investment boom.
“Taking account of the available information, the board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” Lowe said in a concluding paragraph that was unchanged from last month.
A Threat to Revenue As Nigeria’s Largest Importer of Crude, India slash Imports By $39.5B
Nigeria’s revenue earning capacity has come under threat following the reduction of importation of crude oil by India.
India, Nigeria’s largest crude oil importer, reduced crude oil imports by $39.5bn in April, compared to the same time the previous year, data from India’s Petroleum Planning & Analysis Cell showed.
According to the Indian High Commission in Nigeria, India’s crude oil imports from Nigeria in 2020 amounted to $10.03bn.
This represented 17 percent of Nigeria’s total crude exports for the year according to the Nigerian National Petroleum Corporation, as quoted by OilPrice.com.
As Nigeria’s largest importer of crude oil, lockdowns in India’s major cities from the COVID-19 surge in April had ripple effects on Nigeria’s oil sales.
The NNPC was prompted to drop the official standard price of its main export streams, Bonny Light, Brass River, Erha, and Qua Iboe, by 61-62 cents per barrel below its April 2021 prices. They traded at $0.9, $0.8, $0.65, $0.97 per barrel respectively, below dated Brent, the international benchmark, as Oilprice.com showed.
India had been buying the not-too-light and not-too-heavy Nigerian crudes that suited its refiners.
Reuters reported that the Indian Oil Corporation’s owned refineries were operating at 95 percent capacity in April, down from 100 percent at the same time the previous month.
An official at the IOC was quoted as saying, “If cases continue to rise and curbs are intensified, we may see cuts in refinery runs and lower demand after a month.” Hundreds of seafarers risked being stuck at sea beyond the expiry of their contracts, a large independent crude ship owner reportedly told Bloomberg.
India reportedly bought more American and Canadian oil at the expense of Africa and the Middle East, reducing purchases from members of the Organisation of the Petroleum Exporting Countries to around 2.86 million barrels per day.
This squeezed the group’s share of imports to 72 percent from around 80 percent previously, as India’s refiners were diversifying purchases to boost margins, according to Reuters.
India also plans to increase local crude oil production and reduce import expenses as its population swells, according to Bloomberg.
A deregulation plan by the Narendra Modi-led government to boost national production to 40 million tonnes of crude oil by 2023/2024, an increase of almost eight million tonnes, had already been initiated.
According to Business Today, an Indian paper, the country currently imports 82 percent of its oil needs, which amounted to $87bn in 2019.
Invest Africa and DLA Piper Partner to Support ESG Best Practice in African Renewable Energy Projects
The global law firm, DLA Piper, has partnered with Invest Africa, the leading trade and investment platform for African markets, to support the development of ESG best practice in African renewable energy projects.
Clear Environmental, Social and Governance (ESG) targets and measurements have become an increasingly important part of fundraising as investors seek to align their portfolios with sustainable growth. For a continent boasting ample natural resources, this presents a significant opportunity for Africa’s green energy sector. However, renewable does not always equal sustainable and developing and articulating ESG metrics can pose a significant challenge to projects as they prepare investment rounds.
The project will assemble experts from the worlds of impact investment, development finance and law. Across a series of online meetings, participants will discuss strategies to improve ESG practices in African renewable projects from both a fundraising and operational perspective.
Amongst those speaking in the inaugural session on Thursday 13th May are Cathy Oxby, Chief Commercial Officer, Africa Greenco, Dr. Valeria Biurrun-Zaumm, Senior Investment Manager, DEG, Orli Arav, Managing Director – Facility For Energy Inclusion (FEI) – Lion’s Head Global Partners, Beatrice Nyabira, Partner, DLA Piper Africa, Kenya (IKM Advocates) and Natasha Luther-Jones, Partner, Global Co-Chair of Energy and Natural Resources, International Co-Head, Sustainability and ESG, DLA Piper.
Veronica Bolton-Smith, COO of Invest Africa said, “Africa is particularly vulnerable to the impact of climate change despite contributing very little to global emissions. As the price of renewables fall, they will form an ever more important part of Africa’s electrification. In this context, it is essential that projects be given the tools to apply best practice in ESG not only from an environmental perspective but also in terms of good governance, fair working conditions and contribution to social inclusion. I look forward to working closely with DLA Piper on this important topic.”
Natasha Luther-Jones, Global Co-Chair Energy and Natural Resources and International Co-Head Sustainability and ESG at DLA Piper also commented, “Climate change is one of the biggest challenges companies, and people, face today and when we look at its reduction – whether that be in how we power our devices, what we eat or how we dress, where we live or how we work – all roads come back to the need to increase the amount of accessible, and affordable, clean energy. However, renewable energy companies are not automatically sustainable as sustainability is a focus on all ESG factors, not just environmental. We know the need for renewable energy is only going to continue to rise, and therefore so will the number and size of renewable energy companies. The additional challenge is to make sure they are truly sustainable organisations and that’s what we’re excited about discussing during the webinar.”
Oil Posts 2% Gain for the Week Despite India Virus Surge
Oil prices steadied on Friday and were set for a weekly gain against the backdrop of optimism over a global economic recovery, though the COVID-19 crisis in India capped prices.
Brent crude futures settled 0.28% higher at $68.28 per barrel and U.S. West Texas Intermediate (WTI) crude advanced 0.29% to $64.90 per barrel.
Both Brent and WTI are on track for second consecutive weekly gains as easing restrictions on movement in the United States and Europe, recovering factory operations and coronavirus vaccinations pave the way for a revival in fuel demand.
In China, data showed export growth accelerated unexpectedly in April while a private survey pointed to strong expansion in service sector activity.
However, crude imports by the world’s biggest buyer fell 0.2% in April from a year earlier to 40.36 million tonnes, or 9.82 million barrels per day (bpd), the lowest since December.
In the United States, the world’s largest oil consumer, jobless claims have dropped, signalling the labour market recovery has entered a new phase as the economy recovers.
The recovery in oil demand, however, has been uneven as surging COVID-19 cases in India reduce fuel consumption in the world’s third-largest oil importer and consumer.
“Brent came within a whisker of breaking past $70 a barrel this week but failed at the final hurdle as demand uncertainty dragged on prices,” said Stephen Brennock at oil brokerage PVM.
The resurgence of COVID-19 in countries such as India, Japan and Thailand is hindering gasoline demand recovery, energy consultancy FGE said in a client note, though some of the lost demand has been offset by countries such as China, where recent Labour Day holiday travel surpassed 2019 levels.
“Gasoline demand in the U.S. and parts of Europe is faring relatively well,” FGE said.
“Further out, we could see demand pick up as lockdowns are eased and pent-up demand is released during the summer driving season.”
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