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CBN retains interest rate at 11.5% to contain inflation

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The Monetary Policy Committee (MP) of the Central Bank of Nigeria (CBN), rising from its first meeting in 2022, retained the benchmark interest rate at 11.5 per cent to rein in inflation.

Announcing the decision at the end of the meeting, the CBN said holding the interest rate and other parameters constant had impacted the economy positively.

The apex bank said the committee voted to maintain the key lending rate at 11.5 per cent, with the asymmetric corridor of +100 and -700 basis points around the MPR and liquidity ratio at 30 per cent, and that part of majors to contain inflation would be revamping the commodities market and reducing money supply in the country.

The Monetary Policy Committee ended its two-day meeting on Tuesday with a unanimous vote to maintain the Monetary Policy Rate at 11.5 per cent, with the asymmetric corridor of +100bps/-700basis points. It also maintained the Cash Reserve Requirement at 27.5 per cent and liquidity ratio maintained at 30 per cent.

The MPC believes the higher inflation rate recorded in December may be transitory and perhaps reflective of stronger demand during the yuletide season, thus it opined that headline inflation rate may ease in the months ahead, especially with the significant interventions in the agriculture sector by both the CBN and the fiscal authorities.

With this renewed stance of the MPC, equity investors who were concerned that a higher interest-rate environment may trigger a bearish sell-off may have some sigh of relief.

Likewise, the government may be the biggest beneficiary of the sustained accommodative stance of the committee, as it suggests that the Debt Management Office (DMO) may be able to borrow for the government to finance the 2022 budget at perhaps similar interest as it did last year or slightly higher.

This indicates that the DMO may have to look more inward in financing the 2022 budget deficit, as higher interest rates in the global market may undermine appetite to ramp up foreign currency borrowings, except for low-cost bilateral loans from development finance institutions such as the World Bank and AfDB.

More so, the 10-year tax holiday on Withholding Tax and other forms of tax applicable to corporate bonds has expired, meaning that investors in such instruments would now be subjected to relevant taxes, another fiscal constraint that may lead investors to favour sovereign debt notes over corporate bonds, thus the risk is elevated that government borrowing may crowd-out private sector credit going forward.

Interest rate increase in advanced economies will not affect Nigeria – CBN

The CBN also announced that the increase of interest rates in advanced economies will not affect the Nigerian economy as the funds released in these economies through stimuluses did not flow into Nigeria.

CBN Governor, Godwin Emefiele, while addressing members of the press after the MPC communique reading, explained that the advanced economies are only raising interest rates because they were facing significant uptick in inflationary pressure, while Nigeria had been witnessing moderations except for December, 2021, which he said was temporary.

“Flows from the advanced economy did not move into the Nigerian economy, fortunately during the period of stimulus release by world central banks, we witnessed a reversal in our portfolio investments as they feel our yields are not as desirable,” Emefiele said.

Warns against borrowing from loan sharks

The CBN also stated that individuals in need of funds did not need to know anybody to collect loans from banks and should desist from borrowing from loan sharks.

Emefiele expressed displeasure at the way loan sharks handled customers who defaulted.

He said: “You don’t need to know anybody, just go into the portal, fill the form, send your data. If your data is correct you would be able to access loans.

“We have a large number of testimonies of people accessing loans without knowing anybody and they have benefited from them.

“If you go to a loan shark to borrow you would pay two or three times the amount in 90 days. When you refuse to pay they would seize your property; bicycle or television just to collet N200,000.”

He also stated that regulating them was a challenge since they were mostly in the rural areas and unregistered; and that moreover, the CBN was not a law enforcement agency like the police.

BUSINESS

US stocks suffer biggest daily drop in almost two years

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US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. The dollar and Treasuries gained amid a pickup in haven bids.

The selloff sent the S&P 500 down 4%, with the plunge in consumer shares surpassing 6%. Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft. The Nasdaq 100 fell the most among major benchmarks, dropping more than 5% as growth-related tech stocks sank. Megacaps Apple Inc. and Amazon.com Inc. slid at least 5%.

Treasuries rose across the board, sending the 10- and 30-year Treasury yields down as much as 11 basis points. The dollar rose against all of its Group-of-10 counterparts, except the yen and Swiss franc. Gold caught bids in the move into havens.

The benchmark S&P 500 is emerging from the longest weekly slump since 2011, but any rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns.

In some of his most hawkish remarks to date, Federal Reserve Chair Jerome Powell said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. Chicago Fed President Charles Evans said Wednesday he sees a half-point rate increase at next month’s meeting and “probably thereafter.”

In Europe, new-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank.

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Netflix lays off 150 employees due to slow revenue growth and business needs

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Netflix is reportedly laying off nearly 150 employees in the coming days due to disappointing earnings and slow revenue growth.

According to a Variety report, the Amazon Prime Video rival might also terminate its contract with contractual contributors.

The layoffs are about 2 per cent of Netflix’s US workforce. “As we explained [in reporting Q1] earnings, our slowing revenue growth means we are also having to slow our cost growth as a company. So sadly, we are letting around 150 employees go today, mostly U.S.-based,” a Netflix spokesperson said.

The statement further revealed that the decision was primarily driven by business needs rather than individual performance. Netflix reported $7.87 billion in Q1, which was short of Wall Street’s estimates of $7.93 billion.

The report further reveals that nearly 70 part-time employees in Netflix’s animation studio will have to pack up and leave. A report by The Verge stated that about 26 contractors working on Netflix’s fan-focused Tudum website might see a termination.

“A number of agency contractors have also been impacted by the news announced this morning. We are grateful for their contributions to Netflix,” the company said.

Netflix, in its recent earnings call, revealed that it lost thousands of subscribers, which is a first for the company in over a decade.

The company expects to lose an additional 2 million in the next quarter due to the ongoing war between Russia and Ukraine. Netflix has shut shop in Russia following the country’s invasion of Ukraine.

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Dollar breaks N600/$ ceiling ahead of party’s presidential primaries

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Less than two weeks to the presidential primaries of the political parties ahead of the 2023 elections, the US dollar has broken the N600/$ mark at the parallel market and set the tone for a possible uptick in the coming days.

The black market rate had traded between N570/$ and N590/$ since the beginning of the year while the Central bank of Nigeria (CBN)’s intervention at the Nigerian Autonomous Foreign Exchange (NAFEX) has kept its rate under N420/$.

With the latest slump of the naira, the arbitrage between the parallel and NAFEX, which is regarded as the official window, is now inching close to N200/$. The spread measures the deviation of the controlled official rate from the real rate of exchange, with experts calling for liberalisation of the market to enable naira to find its true value.

The World Bank and the International Monetary Fund (IMF) have also warned of the repercussions of sustaining an artificially high naira while calling on the CBN to embark on market reform.

But the CBN has maintained that Nigeria, with the current high level of importation and underperformance of the industrial sector, cannot afford to float the naira completely as the exchange rate could spill out of control.

At the Lagos street market, yesterday, naira traded between N595/$ and N600/$ band. With the presidential primaries of the two leading political parties scheduled for Abuja next weekend, there is an expectation the demand pressure has not peaked, suggesting that naira is in for a protracted pressure.

At peer-to-peer (P2P) trading platforms, the dollar has been trading above N600 in the past three weeks, which had signaled that the black market rate could break through the psychological ceiling.

With that eventually happening, naira could be on a renewed free fall.

But there is also hope that it is a season to offload warehoused hard currencies for political campaigns to possibly shore up supply.

Experts are not sure where rising demand and supply of foreign exchange would lead the naira to, but the interplay between the movements of the two variables is a key factor in predicting the value of the naira in the tense political season. Godwin Owoh, a professor of applied economics, advised Nigerians to prepare for a steeper fall of the local currency, saying partisan politics and intra-party meetings, which are highly dollarised would bring much pressure to bear.

The CBN has promised to continue to protect the naira but its ability could be constrained by the equally falling reserve. For the first time in eight months, the gross reserves dropped below N39 billion on Monday, when CBN data put the figures at N38.92 billion. Effectively, the country’s reserves have depleted by $160 billion year-to-date.

Bismarck Rewane, an economist, had projected the reserve to collapse to $32 billion in the year as he expected the CBN to spend $8 to $10 billion defending the naira, which is taking much pressure from excessive importation.

The value of Nigeria’s imports increased by 64 per cent last year to N20.84 trillion. Sadly, the value of exports increased at a slower rate – 51 per cent – to N18. 91 trillion in the same period. The falling reserves and rising imports have put the apex bank in dire straits in its efforts to continue to defend the naira.

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