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Forex interventions give false hope on naira, says IMF

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REGULAR foreign exchange (forex) interventions in Nigeria and other emerging economies create false sense of security and hope on the local currency, the International Monetary Fund (IMF), has warned.

Nigeria, which operates a flexible exchange rate regime, spends about $16 billion annually to defend the naira.

A large part of the forex interventions are auctions at the inter-bank spot, sale of dollar for invisibles; Small and Medium Enterprises (SMEs); Bureaux De Change (BDC); Investors and Exporters (I&E) Forex window and Forwards.

In a joint report released at the weekend by IMF Director, Monetary and Capital Markets Department, Tobias Adrian; Director of the Fund’s Research Department; Gita Gopinath and Director of the Strategy, Policy and Review Department Ceyla Pazarbasioglu, the trio said that while flexible exchange rates can act as a useful shock absorber in the face of capital flow volatility, they do not always offer sufficient insulation.

They said the impact of the interventions is worse when access to global capital markets is interrupted or market depth is limited.

The report quoted Fund as saying “Persistent interventions might feed a (false) sense of security about future exchange rate developments that leads firms or households to take on more foreign currency debt, thus increasing balance sheet vulnerabilities.”

The IMF team said that in a continuous effort to help countries manage volatile cross-border capital flows, it has taken a major step toward a new analytical macroeconomic framework that can guide appropriate policy responses.

IMF analysis suggests that there is no “one-size-fits-all” response to capital flow volatility, nor is it a case of “anything goes” or that all policies are equally effective.

“Optimal policies depend on the nature of shocks and country characteristics. For instance, the appropriate policy response in a country with less developed financial markets and large foreign currency debts may differ from that of a country that does not have foreign currency mismatches on their balance sheets, or those that can rely on more sophisticated (deep and liquid) markets.”

“Generally, in countries with flexible exchange rates, deep markets, and continuous market access, full exchange rate adjustment to shocks remains appropriate.

“However, when a country has certain vulnerabilities, such as shallow markets, dollarization, or poorly anchored inflation expectations, while flexible exchange rates continue to provide significant benefits, other tools can play a useful role as well.

“In particular, macro-prudential measures, foreign exchange intervention, and capital flow management measures can enhance monetary policy autonomy so monetary policy can adequately focus on containing inflation and promoting stable economic growth. The same tools—including precautionary capital flow management measures on capital inflows, applied before shocks hit—can also help lower financial stability risks.”

For them, the work reflects evolving thinking on macroeconomic policy and will feed into the upcoming review of the IMF’s Institutional View on the Liberalization and Management of Capital Flows, which currently guides the Fund’s advice and assessments of members’ policies.

According to the Fund, international capital flows provide significant benefits for economic development but can also generate or amplify shocks. This dilemma has long posed challenges for policymakers in many open economies.

It said that many policymakers reach for a mix of policy tools to complement interest rate policy when dealing with capital flows. These tools include macro-prudential measures, foreign exchange intervention, and capital flow management measures.

Such diverse approaches were also used during the COVID-19 crisis, with significant differences in responses between countries. However, despite the widespread use of the various tools, to date, there has been no clear conceptual framework to guide the integrated usage of these tools.

The new framework represents a significant advance in thinking about when various tools should and should not be used and how these tools can work together to achieve better outcomes.

-The Nation

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Railway

As Abuja-Kaduna train resumes, NRC gives passengers Nov 6 for unused tickets

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Train operations on the Abuja-Kaduna route resumed on Saturday, after they were suspended on Thursday following an attack that damaged the rail track.

The Nigerian Railway Corporation has given passengers with unused tickets two weekends ending on November to make use of the tickets or forfeit them.

Two reported attacks on Wednesday night and Thursday morning said to have been executed with the use of explosives led to damage on the rail track.

In one of the attacks, the window of the driver compartment of the train was reportedly shattered. This prompted the corporation to suspend the train ride along the route.

But the NRC restored the train services on Saturday after carrying out adequate repairs on the damaged track and beefing up security along the route.

On Saturday when train services resumed along the route, there was a report of low turnout of passengers.

Some of the passengers, who acknowledged improved armed security presence on the train and along the track said they could not use their pre-purchased tickets as the railway officials claimed they had no order to accept them.

A statement issued by the NRC later said customers would have two weeks (ending November 06) to use tickets for rides scheduled during the period operations were cancelled.

The corporation also asked affected customers to give 48-hour notice before their scheduled trips with the unused tickets.

The statement read in part, “Dear esteemed customers, service has been restored on the Abuja-Kaduna service.

“Customers with unused tickets for the 21st and 22nd of October should kindly contact the customer care unit (customercare@tps.ng and 01 888 7741) for rescheduling.

“Kindly give 48-hour notice ahead of new travel date. This offer is open for the next 2 weeks and will expire on the 6th of November, 2021. We sincerely apologise for any inconvenience.”

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Railway

Abuja-Kaduna train resumes operation Saturday – NRC

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Barely 24 hours after suspending the Abuja-Kaduna trains for safety reasons, the Nigerian Railway Corporation says the services will resume Saturday October 23.

The suspension followed an explosion attack by hoodlums on the Abuja-Kaduna rail track Wednesday evening, which the corporation said affected the locomotive tank of a Kaduna-bound train.

Although there have been conflicting accounts of the attack with some attributing it to bandit or terrorist attack, the Managing Director of the corporation said in an interview on Friday night that the NRC team of engineers and technicians had fixed the problem and was certified that the train service could resume on the route after carrying out extensive an inspection of the line.

The NRC also said in a statement issued Friday evening that the Abuja-Kaduna Train Services (AKTS) would “resume tomorrow, Saturday, 23rd October, 2021 as follows: From IDU, Abuja (AK3) at 0950am. From Rigasa, Kaduna (KA4) at 10.35am.”

The statement read in part, “The board and management of the Nigerian railway corporation (NRC) hereby inform the general public, particularly our valued passengers that Abuja-Kaduna Train Services (AKTS) resume tomorrow, Saturday, 23rd October, 2021 as follows: From IDU, Abuja (AK3) at 0950am. From Rigasa, Kaduna (KA4) at 10.35am. Subsequent train services continue.

“The NRC once again sincerely apologises for the inconvenience.”

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Motorists, travellers stranded as Delta bridge collapses

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There was confusion in part of Delta State on Friday following the collapse of the Umutu Bridge in the Ukwuani Local Government Area of the state, leaving several motorists and travellers on the Agbor-Abraka-Eku road stranded.

The incident reportedly occurred in the early hours of the day, adding that the aged long bridge gave way as a Trailer conveying heavy duty construction bulldozer was passing through it towards the Agbor axis of the state.

The deplorable condition of federal road has been on the news, with report of the road project already awarded for reconstruction by the federal government.

The road link many communities in the state and connect the people with other parts of the country, particularly Northern and South-East states.

Deputy Speaker of the Delta State House of Assembly, Chief Ochor Christopher Ochor who hails from the area, regretted that the federal government had not given such an important road the desired attention.

Ochor who spoke to our Correspondent, described the collapsed of the bridge as unfortunate and sympathized with stranded motorists and travelers for the pains it may have caused them.

He said he had already contacted the Commissioner for Work in charge of Urban and Highways roads in the State, Mr Neol Omodion, who has promised to take necessary steps to address the ugly situation.

Ochor however stressed the need to beef up security in the area to protect the lives and properties of the stranded travelers, calling on the federal government to reconstruct the road due to its strategic position  to the socio economic development of the area.

 

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