- 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.”
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.
Naira Exchange Rates Today, Thursday, July 29, 2021
Naira continues its decline across the board as forex scarcity persists following the Central Bank of Nigeria’s decision to cut off the bureau de change forex section.
The Naira exchanged against the United States Dollar at N525 on Thursday at the black market. Against the British Pound and the Euro, the local currency exchanged at N710 and N600, respectively.
The Central Bank of Nigeria had accused Bureau de Change operators of engaging in money laundering and illicit flows with criminal-minded individuals that operate mainly at the unregulated black market section of forex.
Operators at the bureau de change section of forex had been accused of being the main source of forex for speculators and hoarders that manipulate forex rates at the unregulated black market, this the CBN plans to curb by cutting its weekly forex supply to BDCs but focus on servicing the economy through the banks.
Naira Black Market Exchange Rates
Morning * Midday** Evening *** Final Rates
Bureau De Change Naira Rates
Central Bank of Nigeria’s Official Naira Rates
|7/28/2021||SOUTH AFRICAN RAND||27.6161||27.6498||27.6836|
N.B: These tables are updated three times a day.
CBN Orders Deposit Money Banks To Sell FX To Customers
The Central Bank of Nigeria, CBN, has ordered Deposit Money Banks, DMBs to sell foreign exchange (FX) to customers.
CBN disclosed this in a letter to all banks reminding them to set up teller points at designated branches across the country to fulfill legitimate FX requests by customers.
The regulator, on Tuesday, has announced the discontinuity of forex supplies to the Bureau de Change Operators, BDCs in the country over their continuous abuse of the privilege.
The letter, signed by Haruna Mustafa Director, Banking Supervision Department, stated: “Further to the Monetary Policy Committee (MPC. briefing of July 27, 2021, al Deposit Money Banks (DMBs are hereby reminded to set up teller pots at designated branches across the country to fulfil legitimate FX requests for Personal Travel Allowance (PTA Business Travel Allowance (BTA, tuition fees, medical payments SMEs transactions amongst others.
“In this regard, DMBs are also required to adequately publicize the locations of the designated branches and make necessary arrangements to sell FX to customers in cash and/or electronically in compliance with extant regulations.
“DMBs are strongly advised to ensure that no customer is turned back or refused FX provided that documentation and all other requirements are satisfied. Equally undue delays, rationing and/or diversion of FX is strongly discouraged whilst DMBs are required to establish electronic application and alert systems to update customers on the status of their FX requests.
“As communicated during the briefing, a toll-free line has been set up at the CBN for bank customers to escalate unresolved complaints related to their FX requests.
“The CBN will continue to closely monitor banks’ conduct and compliance with this directive in order to ensure an efficient FX market for all legitimate users.
“Please note that any breach of the directive will be severely sanctioned.”
Economists Urged CBN To Reappraise Forex Policy And Eliminate Arbitrage
The decision of the Central Bank of Nigeria (CBN) to suspend dollar sales to the Bureau de change operators has “disrupted one of the juiciest gravy trains in the Nigerian economic racket,” according to the a renowed economist, Bismack Rewane and his team.
In its economic note, Rewane and his team at the Financial Deravatives Company believed that though BDCs are licensed by the CBN, the point had been reached where the program was no longer tenable and surely not sustainable.
“A country whose total exports and receipts were approximately $59.8bn, was spending $5bn to subsidize supposed Nigerian tourists during a covid year.
“In other words, spending more on tourism rather than debt servicing. Therefore, the structure of the forex market needed sanitization,” the team of economists led by Rewane at the FDC said in the note.
The team, however, disagreed with the CBN on its decision to divert dollar meant for the BDCs to banks, saying such an amount to “handing over the yam barns to goats to secure.”
They said such interim solution of substituting BDCs with banks is hardly going to achieve much.
“The question that arises is what is the optimal solution? Administrative controls or market pricing? The interim solution of substituting BDCs with banks is hardly going to achieve much.
“You are virtually handing over the yam barns to goats to secure. In the end, there will be no yams nor goats.
“One of the options is to simultaneously allow banks to retail dollars as they have done in the past and make BDCs engage in retailing same but at a buy rate different from today’s subsidized rate, i.e buy dollars from the CBN at the parallel market rate less a N10 premium.
“For example, if the parallel market rate is N500/$, the purchase rate from the CBN will be N490/$. If the BDCs sell at N550/$, the CBN increases its rate for BDCs to N540/$.
“That will be the same retail rate at the banks. This eliminates the arbitrage corridor and abuse. It will certainly reduce the demand for dollars and it must coincide with an increase in dollar supply from the CBN.
“This way, the naira will appreciate towards the ever-elusive fair value or the REER (Real Effective Exchange Rate), which today is anywhere between N470 and N490/$,” FDC team stated.
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