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Draghi Says Officials ‘Aren’t There Yet’ as ECB Keeps Stimulus

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  • Draghi Says Officials ‘Aren’t There Yet’ as ECB Keeps Stimulus

Mario Draghi said policy makers are still waiting for inflation to catch up with the economic recovery as they put off discussions on winding back stimulus until after the summer.

“We are finally experiencing a robust recovery where we only have to wait for wages and prices to follow course,” the European Central Bank president told reporters at a news conference in Frankfurt on Thursday. “We need to be persistent and patient and prudent, because we’re not there yet.”

Draghi read out an assessment of the economic outlook that was very similar to the one he offered in June, when he called for colleagues to allow the central bank’s stimulus time to work. With less than half a year of quantitative easing left, policy makers have been debating publicly as to when they might start reducing asset purchases.

“While the ongoing economic expansion provides confidence that inflation will gradually glide toward levels in line with the inflation aim, it has yet to translate into stronger inflation dynamics,” Draghi said. “A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up.”

His comments follow what seemed to be a shift in stance three weeks ago, when he said that renewed reflationary forces may provide room for “adjusting the parameters” of current stimulus, while keeping the level of accommodation broadly unchanged.

“Draghi clearly wanted to leave for the summer break with a dovish touch, pushing decisions for later,” said Anatoli Annenkov, senior economist at Societe Generale in London. “It looks well in line with a very gradual and prolonged exit, with inflation data not expected to make it any easier to motivate reduced stimulus.”

Inflation Outlook

The euro surged as Draghi said the repricing of the exchange rate had received “some attention”, without pushing back against the currency’s strength. It was up 1.1 percent at $1.1646 as of 4:47 p.m. Frankfurt time.

Draghi suggested the message he delivered three weeks ago had been overinterpreted. He said much was made of the word “reflation” and little has changed in the outlook for price growth. Euro-area inflation is expected to average just 1.6 percent in 2019, according to the ECB’s forecasts published last month.

Economists predict the first official decision on the future of the policy path will be announced in September, when the Governing Council next meets and publishes new projections. ECB staff are studying various options for how bond-buying might eventually be wound down, according to euro-area officials familiar with the matter. Draghi said committees haven’t been asked to assess scenarios.

Officials will reassess their stimulus in the fall, when the they have “more information than we have today,” he said. The current program of purchases is set to expire at the end of the year.

Earlier on Thursday, policy makers kept their language on quantitative easing unchanged, retaining a pledge to increase the program in size or duration if warranted. Economists had been split over whether they might remove it after the ECB in June discussed scrapping that part of the monetary policy statement, yet Draghi said they were “unanimous” in their decision to keep it.

“The last thing that the Governing Council may want is an unwanted tightening of the financing conditions” which could slow down the process or jeopardize it, Draghi said. He stressed that the ECB has always demonstrated its flexibility in implementing its policy.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Energy

Federal Government Announces Free CNG Conversion for Commercial Vehicles

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The Federal Government declared on Thursday that the conversion of petrol and diesel-powered commercial vehicles to run on Compressed Natural Gas (CNG) will be free of charge.

The announcement came after the government signed agreements with several companies specializing in the conversion of petrol and diesel vehicles to CNG.

Michael Oluwagbemi, the Programme Director/Chief Executive of the Presidential Compressed Natural Gas Initiative (P-CNGI), disclosed the details of the program to journalists in Abuja.

“Today we’ve just signed with five partners here in the FCT (Federal Capital Territory) participating in the Conversion Incentive Programme,” Oluwagbemi stated.

“The program is tackling the barrier to Nigerian commercial transport operators to convert from PMS (petrol) to gas. Most of them have said that the cost of conversion is expensive, and so what we are doing here today is basically to respond to that concern.”

Benefits for Commercial Transport Operators

The initiative primarily targets commercial transporters under various unions, including the Road Transport Employers Association of Nigeria (RTEAN), National Union of Road Transport Workers (NURTW), and the Nigerian Association of Road Transport Owners (NARTO).

According to Oluwagbemi, these unionized operators will receive conversion kits and installation services completely free of charge.

“This is going to be done through certified conversion workshops that we are beginning to identify. We’ve identified about 123 of them, and five are here with us today in Abuja. As we expand across the country, we will activate more of them,” he said.

Ride Share Operators Included

In addition to unionized commercial transporters, ride share operators such as those working with Uber, Bolt, Lag-Ride, and Move will also benefit from the program. These operators will receive a 50% discount on the conversion equipment and free installation.

Furthermore, the arrangement allows them to pay for the remaining costs in installments, eliminating the need for upfront payments.

“We hope to add more ride share operators soon. Lag-Ride has already signed up, and we are going to send the agreement next week,” Oluwagbemi added.

Impact on Transportation Costs

Through this program, the government aims to reduce transportation costs for Nigerians. Oluwagbemi highlighted that over 20,000 kits will be available in the next three months, distributed across 25 states with existing CNG capacity.

This initiative is part of a broader palliative program funded by the National Assembly, which has allocated additional resources for the acquisition of more kits later this year.

“The agreement we signed today ensures that the savings from the conversion will be passed on to ordinary Nigerians. We will begin to see some impact in terms of reduced transportation costs,” Oluwagbemi noted.

Monitoring and Enforcement

To ensure the success of the program, the government has implemented a robust monitoring mechanism.

The Nigerian gas vehicle monitoring system will oversee the conversion process and ensure compliance with agreed pricing reductions.

“We have a very strong monitoring mechanism around conversion and the enforcement of reduced pricing for Nigerians. The framework of the agreement includes significant pass-on of savings to ensure the purpose of the palliative is achieved,” Oluwagbemi emphasized.

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Crude Oil

Nigeria’s Oil Production Rises by 25,000 Barrels Daily, Hits 1.276 Million BPD in July

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Nigeria’s daily oil production increased in July by 25,000 barrels per day to 1.276 million barrels per day (mbpd).

This development was disclosed by the Organisation of the Petroleum Exporting Countries (OPEC) in its Monthly Oil Market Report for June, based on direct communication with the Nigerian government.

In April, production was recorded at 1.28mbpd, but it fell to 1.25mbpd in May.

Secondary sources cited by OPEC indicated a slight decrease from 1.37mbpd in May to 1.36mbpd in June.

This disparity shows Nigeria’s challenges in maintaining a steady increase in oil production.

Mele Kyari, Group Chief Executive Officer of the Nigeria National Petroleum Company Limited (NNPC), had previously stated that crude production was approaching 1.7mbpd in May.

Kyari emphasized the potential for higher production levels, recalling that during the COVID-19 pandemic in April 2020, Nigeria’s production reached 2.2mbpd without new drilling activities.

The drop in production since then has been attributed to various factors, including theft and vandalism of oil infrastructure.

Despite these challenges, Nigeria’s oil production saw a marginal increase in April, rising from 1.23mbpd in March to 1.28mbpd, according to OPEC data.

This increase followed a significant drop from 1.32mbpd in February to 1.23mbpd in March.

Stakeholders have expressed concern over the persistent decline in production and its impact on revenue.

In response, the NNPC declared a state of emergency on oil production, aiming to address the factors hindering output.

At the Nigeria Oil and Gas Conference and Exhibition Week in Abuja, Kyari reaffirmed the NNPC’s commitment to tackling production challenges.

“We have declared war on the challenges affecting our crude oil production. We know what to fight, we have the right tools, and we are working with our partners to improve the situation,” Kyari stated.

The recent increase in daily oil production is a positive development for Nigeria’s oil sector, but sustained efforts are required to achieve long-term stability and growth in production levels.

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Crude Oil

Oil Prices Climb as U.S. Inflation Eases, Brent Hits $86

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Crude oil - Investors King

Oil prices rose on Friday after traders noticed signs of easing inflationary pressures in the United States, the world’s largest oil consumer.

Brent crude oil, against which Nigerian oil is priced, had risen by 72 cents, or 0.8% to $86.12 a barrel.

Meanwhile, U.S. West Texas Intermediate (WTI) crude oil climbed by 85 cents, or 1%, to $83.47 a barrel. Both contracts had also gained in the prior two sessions.

Despite these gains, Brent crude oil was poised to fall by about 1% week-on-week after four consecutive weekly increases.

WTI crude oil, on the other hand, remained broadly stable on a weekly basis.

Investor confidence was boosted after data released on Thursday showed that U.S. consumer prices fell in June, fueling hopes that the Federal Reserve might cut interest rates soon.

Lower rates are expected to spur economic growth, thereby increasing fuel consumption.

However, the market is still awaiting more definitive signs of action. While Federal Reserve Chair Jerome Powell acknowledged the recent trend of improving price pressures, he told lawmakers that more data would be needed to strengthen the case for rate cuts.

“Cooling U.S. inflation numbers may support the case for the Fed to kick-start its policy easing process earlier rather than later, but it also adds to the series of downside surprises in U.S. economic data, which points to a clear weakening of the U.S. economy,” said Yeap Jun Rong, a market strategist at IG.

In addition to inflation data, indications of strong summer fuel demand in the U.S. also supported prices. U.S. gasoline demand was at 9.4 million barrels per day (bpd) in the week ended July 5, the highest level since 2019 for the week that includes the Independence Day holiday, according to government data released on Wednesday.

Jet fuel demand on a four-week average basis was at its strongest since January 2020.

“The market will remain range-bound, paralyzed by opposing forces of expected demand recovery fueled by anticipation of a strong summer for fuel consumption … but sentiment remains pegged by ongoing economic weakness and uncertain demand recovery,” said Emril Jamil, a senior oil analyst at LSEG.

The strong fuel demand encouraged U.S. refiners to ramp up activity and draw from crude oil stockpiles. U.S. Gulf Coast refiners’ net input of crude rose last week to more than 9.4 million bpd for the first time since January 2019, government data showed.

However, weaker demand signs from China, the world’s largest oil importer, could counter the positive outlook from the U.S. and weigh on prices.

“The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11% in June from the previous year,” said Tamas Varga of oil broker PVM.

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