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Economy Gains as CBN Reforms Lift Exchange Rate

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  • Economy Gains as CBN Reforms Lift Exchange Rate

The global economy has been in turmoil since the emergence of Donald Trump as United States (US) President. While the American dollar continues to appreciate, other countries’ currencies have been nose diving. Besides, the trade tensions between the US and China are beginning to take a toll on global trade.

For instance, interest rate hike in the US, funds flow reversals away from emerging and frontier markets, appreciation in the value of the United States dollar relative to other emerging markets’ currencies have triggered over 20 per cent loss in value of four emerging market currencies from January to September. This crisis has aggravated high current account deficit in some of the emerging market countries, translating to rising dollar debt and fiscal deficit as a proportion of their Gross Domestic Product (GDP).

Interestingly, Nigeria seems relatively insulated from the crisis in emerging markets given the level of reforms introduced by the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele.

Some of these policies include the restrictions of 41 items from accessing forex from the CBN foreign exchange (forex) window, the introduction of Investors and Exporters forex window, sale of forex to Bureaux De Change (BDCs), the Anchor Borrowers programme, as well as forex intervention at the interbank forex market to sustain dollar supply at the retail end of the market.

The Anchor Borrowers’ Programme, together with other initiatives like the Commercial Agriculture Credit Scheme and other packages for Small and Medium Enterprises (SMEs), are holding on significantly in the drive to boost the economy and shield it from perceived volatilities in the international economy that is dragging back most emerging markets.

The bank has committed over N23 billion to the Anchor Borrowers’ Programme, with active participation across 14 states of the Federation. In Kebbi State, over 78,000 smallholders are now cultivating about 100,000 hectares of rice farms. It is worthy of note that before the policy intervention of the CBN, Nigeria was consuming about 6.1 million tonnes annually, most of it imported and was producing less than 2.5 million metric tonnes. This has been significantly reversed just as the apex bank remains committed to do more with some identified crops such as rice, maize, sorghum, tomatoes, cassava, cocoa, cotton, dairy and groundnut. One of the reasons the CBN ventured into development banking was to minimise the effects of high interest rates on customers.

The bank has intervened through various developmental programmes, all at single digit interest rates, disbursing N393 billion in 490 projects under the Commercial Agriculture Credit Scheme, N79.8 billion under the Micro, Small and Medium Enterprises (MSME) Scheme, and N236.4 billion under the Power and Aviation Intervention Fund with 6.7 million direct jobs and a lot more indirect jobs. These policy decisions, analysts said have kept the naira stable at both the official and parallel market. The naira at the weekend strengthened at N358 to dollar at the parallel market and has remained at N360 to dollar at the official market.

I&E Forex Window

The coming of Investors’ and Exporters’ (I&E) Forex window and continued dollar/Yuan interventions have ensured that forex demand at the retail end of the market are met.In the first two weeks of introducing I&E Foreign Exchange Window, forex speculators lost over N500 million, as the CBN sustained its dollar interventions in the interbank market. The losses grew to over N1 billion in the first two months after more foreigners began to use the window, and its impact on the forex market deepened.

The economy has also enjoyed major inflow of forex in recent months with over $51 billion recorded in the I&E FX Window. The I&E Forex window, also called willing-buyer willing-seller window, allows foreign investors to find buyers for their dollars at a mutually-agreed price. The CBN controls about 15 per cent of all the transactions carried out in the window.As it stands now, many forex users will have no problem accessing forex for his holidays trips given the level of stability and liquidity existing in the foreign exchange market.

The CBN recently injected $340 million into the interbank retail Secondary Market Intervention Sales (SMIS). This is in addition to the sale of 69 million Chinese Yuan (CNY) in the spot and short tenored forwards.

According to its Acting Director, Corporate Communications, Isaac Okorafor, the sales in the Chinese Yuan were through a combination of spot and 15-day tenors. He said the exercise, in line with its guidelines, were for the payment of Renminbi denominated Letters of Credit for agriculture as well as raw materials and machinery.

Okorafor also explained that the requests attended to were bids received from authorised dealers, adding that Renminbi’s availability was sure to ease pressure on the Nigerian foreign exchange market.

Afrinvest West Africa Limited Managing Director Ike Chioke said the jump in foreign inflows was not a surprise given the development in the forex market, particularly the launch of the I&E forex window in April.”The knock-on effects of strong portfolio flows are already evident in performance of the domestic equities market which has historically been driven by foreign portfolio investors,” he said. Chioke said a strong positive correlation exists between the exchange rate and crude oil price in the country.

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.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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