- ECB Keeps Policy Unchanged to Battle Economic Slowdown
The European Central Bank pledged to keep interest rates at record lows at least through the summer after policy makers met amid rising concern about the region’s growth outlook.
The decision on Thursday came just hours after a report signaled the euro area’s economic slowdown is set to drag on, with the region beset by political strife and global risks such as mounting trade protectionism. Economists and investors have cut their forecasts, questioning the relative optimism President Mario Draghi expressed last month when he announced the end of bond purchases.
“The biggest risk right now is that we talk ourselves into a recession,” Natixis Chief Executive Officer Jean Raby said in a Bloomberg interview at the World Economic Forum in Davos. “The environment from the monetary-policy standpoint is likely to stay relatively stable and benign.”
The euro was little changed near a three-week low after the report. It traded at $1.1349 at 1:46 p.m. Frankfurt time, down 0.3 percent.
Draghi will hold a media briefing at 2:30 p.m. in Frankfurt, where the focus will be on the Governing Council’s assessment of the risks to growth. A survey of purchasing managers published earlier Thursday showed German manufacturing shrinking for the first time in four years, dragging the euro-area economy into its worst performance since 2013.
Earlier this week, the International Monetary Fund cut its global growth forecast, blaming softening demand across Europe. Germany and Italy saw the biggest revisions after stricter emissions tests slashed car production in the region’s largest economy and a budget spat between Rome and Brussels boosted sovereign borrowing costs.
Economists predict the ECB will lower its outlook when projections are updated in March, and have extensively discussed in the run-up to Thursday’s meeting whether the recent spate of disappointing data will prompt policy makers to describe risks to growth as tilted to the downside.
To maintain ample monetary accommodation, the Frankfurt-based institution said it intends to reinvest proceeds from bonds maturing under its 2.6 trillion-euro ($3 trillion) bond-buying program for “an extended period of time past the date” of its first interest-rate increase. Its cautious approach is echoed around the world as the U.S. Federal Reserve stresses it’ll be patient with rate hikes to ease market turbulence and China seeks ways to to deal with its slowest expansion in almost three decades.
Draghi told European lawmakers earlier in January that the bloc isn’t heading into a recession. Acknowledging that continued uncertainty over economic prospects weighs on confidence, he said there’s also reason for optimism: Unemployment continues to fall across the region and wages are on the rise, giving the ECB reason to believe inflation will pick up gradually.
For some policy makers including Sabine Lautenschlaeger and Estonia’s Ardo Hansson, that means the economy is evolving as projected and a rate hike later is this year still in the cards.
Yet the window for the ECB to tighten policy is closing, according to a Bloomberg survey of economists. They’ll be looking for any hints from Draghi on whether the central bank will offer new long-term loans to prevent a tightening of financial conditions. A suggestion was already made in December to “revisit the contribution” the previous round made to the policy stance. Most economist except an announcement in March.
Naira Plunges to Record Low of N422/US$1 at Official Market
The Nigerian Naira extended its decline to N422 to a United States Dollar at the official forex market, the investors and exporters forex window managed by the FMDQ Group.
Naira opened the day at N413.50 to a US Dollar before plunging to as low as N436 at the spot forex market and N446 at the forward market. The local currency eventually closed the day at N422.07 per US Dollar.
Investors at the window traded $141.94 million during the trading hours of Thursday.
The decline was after Vice President Osinbajo asked the Central Bank of Nigeria (CBN) to rethink its current forex policy and allow the Naira to reflect market conditions. This, the Vice President said will help close the current gap that exists between the official rate and black market rate.
Media outlets had interpreted the Vice President position as a call for further devaluation of the Nigerian Naira. However, in a statement signed by Laolu Akande, Senior Special Assistant to the President on Media & Publicity, Office of the Vice President, Akande explained that Osinbajo is simply calling for a single forex rate to dislodge the activities of speculators and hoarders at the various unregulated black market.
He added that the 40 percent or N160 arbitrage difference between the official rate of N410 and N570 offered at the black market will continue to encourage corruption in the forex market.
“For context, the Vice President’s point was that currently the Naira exchange rate benefits only those who are able to obtain the dollar at N410, some of who simply turn round and sell to the parallel market at N570. It is stopping this huge arbitrage of over N160 per dollar that the Vice President was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit!
“This was why the Vice President called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption.”
At the black market, traders exchanged Naira at N565 to a United States Dollar on Thursday.
Osinbajo Explains Why Forex Policy Should Discourage Arbitrage and Corruption
Following Vice President Yemi Osinbajo suggestions that the Central Bank of Nigeria (CBN) should rethink its present forex policy that encourages arbitrage and corruption and allow the Nigerian Naira to reflect market realities that were misconstrued as devaluation by the media, the Vice President has now come out to clear the air that he is not calling for a devaluation of the embattled Naira but to close the arbitrage gap of 40 percent gain that existed between CBN rate of N410/US$1 and the black market rate of N570.
In a statement released by Laolu Akande, Senior Special Assistant to the President on Media & Publicity, Office of the Vice President, the Vice President position was that the current Naira exchange rate benefits only those who are able to access the US Dollar at N410, “some of who simply turn round and sell to the parallel market at N570. It is stopping this huge arbitrage of over N160 per dollar that the Vice President was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit!,” the statement reads.
It continues “This was why the Vice President called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption.
“It is a well known fact that foreign investors and exporters have been complaining that they could not bring foreign exchange in at N410 and then have to purchase foreign exchange in the parallel market at N570 to meet their various needs on account of unavailability of foreign exchange. Only a more market reflective exchange rate would ameliorate this. With an increase in the supply of dollars the rates will drop and the value of the Naira will improve.
“The real issue confronting the economy on this matter is how to improve the supply of foreign exchange, but this will not happen if we do not allow mechanisms like the Importers and Exporters window to work. If we allow this market mechanism to work as intended, we will find that the Naira will appreciate against the dollar as we restore confidence in the system.”
Dollar Rate to Naira Today at Official Forex Window
The Dollar rate to Naira closed 0.10 percent lower on Wednesday at the official forex window despite supply rising by over 100 percent.
Naira dipped at the official forex exchange window to N414.73 against the United States Dollar on Wednesday, down from N414.30 it closed on Tuesday.
The Dollar rate to Naira opened the day at N414.33 before dropping to as low as N415.20 during the trading hours of Wednesday. Investors traded $266.32 million on Wednesday, against $122.15 million exchanged on Tuesday.
At the unregulated forex section, the black market, the Naira was exchanged at N565.00 and N568.00 to a US$ on Wednesday in Abuja.
In Uyo, forex dealers said the Naira exchanged at N580 to a U.S dollar N580.00 due to increase in demand they experienced on Wednesday.
“We bought at N570.00 and sold at N572.00 per $1 on Tuesday, but today, we sold at N578.00 and even N580.00 at some point because the demand was much and people were selling as they see deemed fit, ” the anonymous dealer stated.
However, the Central Bank of Nigeria’s exchange rates remained largely unchanged as shown below.
Central Bank of Nigeria’s Exchange Rates
|10/6/2021||SOUTH AFRICAN RAND||27.0668||27.0998||27.1328|
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