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Monetary Policy’ll Keep Economic Variables Neutral in 2019 – Sigma

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Interbank rate
  • Monetary Policy’ll Keep Economic Variables Neutral in 2019 – Sigma

To keep economic variables in a neutral state, monetary policy will be needed to deliver an economic policy that will respond to the developing external environment in 2019, according a report by Sigma Pensions.

The Chief Investment Officer, Sigma Pension, Mr Pabina Yinkere, stated this in a report on ‘Nigeria 2019 Outlook: Election downtime, tight monetary policy, drive subdued growth outlook’.

He stated, “The Nigerian economy faces another round of oil-induced pressure over 2019. However, focus is likely to be on the elections and less on economics. In a bid to keep economic variables in a neutral state, monetary policy will shoulder the burden of delivering an economic policy response to the developing external environment and will tilt towards a contractionary stance.

“We think fiscal policy response will likely be delayed until much later in the year, whichever way the elections go. Given likely foreign reservation towards naira assets in general, our investment strategy prioritises a focus on assets with high correlation to interest rates over most of 2019.”

After a period of strength, it stated that the rapid sell-off in crude oil in November and December 2018 amid a testy political climate was driving a cautious outlook regarding Nigeria’s macroeconomic environment in 2019.

“In our view, the investment landscape for the year will be shaped by relatively lower oil prices, the pace of monetary policy normalisation in developed markets; and the 2019 general elections in February.

For much of 2018, it added, Nigeria’s financial markets struggled under the weight of heightened political risk ahead of the 2019 polls.

Also, it added, a fresh concern over crude oil prices in a less accommodative global financial environment presented headwinds to the domestic investment landscape.

“In 2019, we note that Nigeria’s large dependence on crude oil for foreign exchange reserves and fiscal revenues, positions it poorly in a soft crude oil price environment, which we envisage over the year.

“The implications of a less supportive current account balance for key economic variables are central in our thoughts around the macroeconomy, policy responses and asset price movements.”

According to the report, there will be a less supportive oil price and external environment over 2019.

He stated, “The central point from our review of the global macroeconomic environment is that in contrast to 2018 when stronger oil prices underpinned a favourable external balance for Nigeria, the reverse is likely to be the case in 2019.

“We adopt a pessimistic view on oil amid a growing supply-demand imbalance reflecting a mix of rising US Shale oil production and subdued global economic growth and its implications for oil consumption.

“Accordingly, we think any OPEC rebalancing will struggle to clear a building over-supply picture and expect the benchmark Brent crude oil prices to average between $55-60/bbl (2018 average: $71.7/bbl). Given the large role of oil in Nigeria’s exports, our cynicism about oil prices feed through to a weaker view on the current account balance in 2019.

On the global front, he said, “We think US monetary policy will continue on the path of normalisation and envisage further rise in US bond yields curbing the quantum of foreign portfolio inflows to emerging/frontier markets.

“Overall, the balance of payments is likely to present headwinds to Nigeria’s economic performance in 2019 and in particular the exchange rate.”

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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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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