Connect with us

Forex

Fed Defends Gradual Interest Rate Policy

Published

on

  • Fed Defends Gradual Interest Rate Policy

The Federal Reserve on Friday defended its policy of raising interest rates despite Trump’s criticism of higher borrowing costs.

Jerome Powell, the Federal Reserve Chairman said gradual rate hike is healthy for the economy and signaled more hikes were coming.

The Fed has raised interest rates twice this year and expected to do so again in September and later in December. However, President Trumps has criticised the move, saying raising borrowing cost will slow down economic productivity.

Speaking at a research symposium in Jackson Hole, Wyoming, Powell said “my colleagues and I believe that this gradual process… remains appropriate.”

“The economy is strong. Inflation is near our 2 percent objective, and most people who want a job are finding one … If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate.”

Powell further stated that gradual rate hikes are the best way to protect the economic recovery and sustain job growth while keeping inflation under control.

Antoinette Schoar, an economist at the MIT Sloan School of Management, who seems to support Fed’s position said the Federal Reserve should remain “above the fray.” “Fed policy should not have anything to do with politics,” said Schoar, who is also attending the Jackson Hole conference.

Perhaps, Laurence Boone, the chief economist of the OECD, sum up the division between the President and the Fed the best, according to him Trump is “fueling the economy with fiscal stimulus and then asking that you don’t tighten interest rates, but the Fed is normalizing monetary policy, not really tightening – it’s accompanying the recovery and lifting rates up to the point where they are neutral.”

“Financial conditions are strong and positive, and the Fed is tightening in line with those trends,” Boone added.

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 long experience in the global financial market.

Continue Reading
Comments

Forex

CBN Starts Using N380/$ Official Rate, Expects to Make it Official Soon

Published

on

Godwin Emefile

CBN Moves Official Exchange Rate to N380 Per US Dollar

The Central Bank of Nigeria (CBN) has started using N380 as its official exchange rate for the United States dollar, according to a BusinessDay report.

The report noted that the apex bank recently disbursed the Federal Government’s monthly allocation to the three tiers of government using the new forex rate. Therefore, resulting in over N70 billion extra payment.

While the apex bank is yet to make an official announcement and still have the N360 exchange rate stated on its website as the nation official rate, an anonymous senior official of the central bank interviewed by BusinessDay said “yes, it is aimed at moving the rate closer to that of the Investors and Exporters (I&E) window, which traded at N386/$1 yesterday.

“From time to time, adjustment would continue to happen, either upward or downward in line with market fundamentals. Certainly, no single rate can be achieved, but we would keep moving towards I&E rate.”

It would be recalled that Godwin Emefiele, the Governor, CBN, about ten days ago told a group of foreign investors that the apex bank is working towards achieving a single foreign exchange rate around the Nigerian Autonomous Foreign Exchange Market (NAFEX)/Investors and Exporters’ Forex window.

The CBN governor had stated that “what we mean by exchange rate unification is moving towards the NAFEX. NAFEX is our dominant market for the purchase and sale of forex and it is a free market where everybody is free to sell their dollars and those who want to buy are free to buy dollars.

“That means that whether you are a businessman, a bank, CBN, and you have dollars, you can bring it to the market to sell and if you want to buy dollars, you can come to the market.

“Like some of you must have seen, three years before 2019, we saw a relatively stable forex market because the NAFEX rate and even the rate at which the central bank transacts business outside the NAFEX were substantially close to each other. So, the CBN will continue to pursue unification around the NAFEX.”

Meanwhile, the Nigerian Naira traded at a record low of N462 against the US dollar on the black market during the weekend.

Continue Reading

Forex

Naira Depreciates Further Against US Dollar on Black Market

Published

on

ATM machine

Naira Exchange at N462 Against  US Dollar on the Black Market

Naira resumed its bearish trend against the United States dollar during the weekend on the black market.

The local currency declined by N1 from the N461 it exchanged against the US dollar during the week to N462 during the weekend, its lowest exchange rate in almost two years.

This decline continues against the British Pound as the Naira depreciated by N2 from N560 it traded during the week to N562 during the weekend.

Against the Euro single currency, the Nigerian Naira remained unchanged at N502 it exchanged during the week.

On the Investors and Exporters Forex Window, the local currency was flat. Trading at N386 against the greenback, the same rate it exchanged on Thursday.

However, the total volume traded on the window declined by 48 percent from $204.90 million traded on Thursday to $105.05 million on Friday.

Market uncertainties continue to dictate Naira’s exchange rate as traders remained wary of eventualities following news that the Central Bank of Nigeria is working on a plan to unify the nation’s foreign exchange rate.

Also, the weak foreign reserves and low foreign exchange generation amid falling oil prices and rising forex demand from investors looking to move their funds out of the country are the main factors weighing on the Naira outlook.

Last week, Moody’s Investors Service said “Lower dollar inflows at a time when foreign currency borrowing will likely be more expensive for Nigerian banks will strain their foreign currency funding, despite substantial improvements compared to 2016.”

“Our moderate scenario where foreign-currency deposits decline by 20%, while loans remain constant, would increase rated banks’ funding gap to NGN1.5 trillion [$3.8 billion], and to NGN1.9 trillion [$5.0 billion] under our severe-case scenario of 35% foreign-currency deposit contraction, creating acute funding challenges.”

Continue Reading

Forex

Foreign-Currency Shortages to Render Nigerian Banks Vulnerable -Moody’s

Published

on

recession

Forex Scarcity Renders Nigerian Banks Vulnerable

Nigeria’s banks to experience acute funding challenges as the drop in foreign currency deposits hit a record-low following COVID-19 pandemic disruption, stated Moody’s.

In a recent report titled ‘Renewed foreign-currency shortages highlight vulnerability for Nigerian banks‘ published by Moody’s Investors Service, a bond credit rating business of Moody’s Corporation, the drop in dollar deposits amid low oil revenue, volatile foreign investment and declined remittances from abroad due to COVID-19 pandemic are threatening to renew forex liquidity crisis of 2016-2017 on Nigerian banks.

“Lower dollar inflows at a time when foreign currency borrowing will likely be more expensive for Nigerian banks will strain their foreign currency funding, despite substantial improvements compared to 2016,” said Peter Mushangwe, Analyst at Moody’s.

“Our moderate scenario where foreign-currency deposits decline by 20%, while loans remain constant, would increase rated banks’ funding gap to NGN1.5 trillion [$3.8 billion], and to NGN1.9 trillion [$5.0 billion] under our severe-case scenario of 35% foreign-currency deposit contraction, creating acute funding challenges.”

According to Moody’s, oil and gas exports account for about 90 percent of Nigeria’s foreign currency revenue. However, with crude oil now trading at around $40 per barrel, far below its average of $65 per barrel in 2019 and $72 per barrel in 2018, Nigeria’s banks are expected to struggle to meet foreign-currency withdrawals in the next 12 to 18 months.

Moody’s said its rated “banks reduced their foreign currency funding gap to a combined NGN354 billion ($984 million) in 2019 from NGN1.436 trillion ($5.5 billion) in 2016. The ratio of foreign-currency loans to foreign-currency deposits at Moody’s rated banks dropped to 106% at the end of 2019 from 135% in 2016 as banks cut back on dollar loans while building up their dollar deposits.

“The smaller funding gap will enable the banks to better withstand unforeseen deposit withdrawals and likely higher borrowing costs. However, in the event of foreign currency deposits contracting by 20% or more, banks’ funding gaps will be significant.”

This further explained why the Nigerian Naira is trading at a record low of N461 against the United States dollar on the black market in recent weeks.

Continue Reading
Advertisement
Advertisement
Advertisement
Advertisement

Trending