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Covid-19’s Lingering Impact is Fading Investor Optimism, Says IMF

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IMF Managing Director Kristalina Georgieva

The IMF is warning in its latest Global Financial Stability Report that Covid-19’s lingering impact is fading optimism among investors, which could lead to financial tightening in the medium term, Tuesday (October 12).

“Amid the prolonged and painful pandemic, financial stability risks have been contained so far. Financial conditions have eased since the start of the pandemic. This reflects the continuing monetary and fiscal support for the economy, which helped spur a rebound from 2020. Yet the sense of optimism which had propelled markets in the first half of the year has faded somewhat,” said Tobias Adrian, the IMF’s Financial Counsellor and Director of the Monetary and Capital Markets.

Key world economic policymakers are gathering in Washington, DC for the Annual Meetings of the IMF and World Bank.

“Uneven vaccine access, along with the mutations of the virus, have led to a resurgence of infections. Investors are increasingly worried about the economic outlook amid great uncertainty about the strength of the recovery. Anxiety about the inflationary pressures has recently pushed yields higher. As sudden and sustained repricing of risk could interact with underlying vulnerabilities, that could lead to a tightening of financial conditions, which could put growth at risk in the medium term,” said Adrian ahead of the report’s release.

A prolonged period of extremely easy financial conditions during the pandemic—which certainly has been needed to sustain the economic recovery—has allowed overly stretched asset valuations to persist. If that overstretch continues, it may, in turn, intensify financial vulnerabilities.

“Financial vulnerabilities continue to be elevated in a number of sectors, although vulnerabilities have eased in some areas since April. Policymakers are now confronted with a difficult tradeoff. They must continue to provide near-term support to the global economy, yet they must simultaneously try to avoid the buildup of medium-term financial stability risks. After more than a year, complacency appears as a real risk. Asset valuations remain stretched and risk taking persists. If left unchecked, such vulnerabilities could become structural legacy issues,” added Adrian.

Adrian urged policymakers to continue to provide near-term support to the global economy, even as they must simultaneously try to avoid the buildup of medium-term financial-stability risks.

“Policymakers should formulate action plans that would guard against unintended consequences. Monetary and fiscal policy support should be more targeted and tailored to the country’s specific circumstances, given the varying pace of the recoveries across countries. Central banks should provide clear guidance about the future approach to monetary policy and remain vigilant to avoid an unwarranted and abrupt tightening of financial conditions. If price pressures turn out to be more persistent than anticipated, they should act decisively to avoid an unmooring of inflation expectations. Policymakers should take early action and tighten selected macro prudential tools to target pockets of elevated vulnerabilities,” said Adrian.

In a context of higher price pressures, investors are now pricing in a rapid and fairly sharp tightening cycle for many emerging markets, although the increase in inflation is expected to be temporary.

“In emerging markets and frontier economies, policymakers should rebuild buffers and implement structural reforms. Some of those economies remain exposed to the risk of a sudden tightening in external financial conditions. Rebuilding buffers and implementing enduring reforms to boost structural growth prospects will be pivotal to cushion the adverse impact of capital flow reversals or an abrupt increase in financing costs,” said Adrian.

Adrian concluded his remarks by advising that now is the far-sighted policy action.

“With vulnerabilities intensifying and with policy support for economic growth having already been asserted to an unprecedented degree. This is a time for far sighted policy action. Policy action must be carefully crafted, aiming to avoid unintended consequences, which could put growth at risk, and which could lead to an abrupt adjustment in the financial market.” Said Adrian

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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