Business
Forex interventions give false hope on naira, says IMF
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
Business
CBN permits BDCs to buy up to $25,000 FX weekly from NFEM
CBN permits BDCs to buy up to $25,000 FX weekly from NFEM
The Central Bank of Nigeria (CBN) has granted Bureau de Change (BDC) operators temporary permission to purchase up to $25,000 weekly in foreign exchange (FX) from the Nigerian Foreign Exchange Market (NFEM).
The Central Bank of Nigeria (CBN) has granted Bureau de Change (BDC) operators temporary permission to purchase up to $25,000 weekly in foreign exchange (FX) from the Nigerian Foreign Exchange Market (NFEM).
This move, detailed in a circular dated December 19, 2024, is designed to meet seasonal retail demand for FX during the holiday period.
The circular was signed by T.G. Allu, on behalf of the Acting Director of the Trade and Exchange Department.
The arrangement will be in effect from December 19, 2024, to January 30, 2025.
Under the directive, BDCs may purchase FX from a single Authorized Dealer of their choice, provided they fully fund their accounts before accessing the market.
Transactions to occur at the prevailing NFEM rate
The transactions will occur at the prevailing NFEM rate, and BDCs are required to adhere to a maximum 1% spread when pricing FX for retail end-users.
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All transactions conducted under this scheme must be reported to the CBN’s Trade and Exchange Department.
The circular read in part:
“In order to meet expected seasonal demand for foreign exchange, the CBN is allowing a temporary access for all existing BDCs to the NFEM for the purchase of FX from Authorised Dealers, subject to a weekly cap of USD 25,000.00 (Twenty-five thousand dollars only).
This window will be open between December 19, 2024 to January 30, 2025.
“BDC operators can purchase FX under this arrangement from only one Authorized Dealer of their choice and will be required to fully fund their account before accessing the market at the prevailing NFEM rate. All transactions with BDCs should be reported to the Trade and Exchange department, and a maximum spread of 1% is allowed on the pricing offered by BDCs to retail end-users.”
The CBN assured the general public that PTA (Personal Travel Allowance) and BTA (Business Travel Allowance) remain available through banks for legitimate travel and business needs.”
These transactions are to be conducted at “market-determined exchange rates” within the NFEM framework.
This initiative reflects the CBN’s strategy to stabilize the FX market and manage seasonal surges in demand.
CBN permits BDCs to buy up to $25,000 FX weekly from NFEM
Business
Bitcoin price crashes to $95,000
Bitcoin price crashes to $95,000
The cryptocurrency market experienced sharp declines after the United States Federal Reserve announced a 25-basis point rate cut.
Bitcoin’s price dropped from its record high of $108,267 to a multi-day low of $95,000 within 36 hours.
Amid this turmoil, Paper-hand traders are rushing to sell their assets while the experienced ones are taking advantage of the dip to increase their portfolios.
Bitcoin price drops after Federal Reserve announces rate cut
Bitcoin experienced a sharp decline after the Federal Reserve cut interest rates by 25 basis points for the third time this year.
- The announcement led to Bitcoin’s price falling to a multi-day low of $95,000, marking a $13,000 drop within 36 hours.
- This pullback followed a recent record high of $108,268 earlier in the week.
- Federal Reserve Chair Jerome Powell suggested the central bank may halt further rate reductions due to recent Consumer Price Index (CPI) data.
“Today was a closer call, but we decided it was the right move,” Powell said during a press conference. While rate cuts typically benefit cryptocurrencies due to their risky asset status, this decision appears to have introduced caution among buyers.
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Crypto analysts predict that Bitcoin could face increased volatility in the short term. On-chain data reveals selling pressure has eased since November, but caution remains high. Buyers are closely monitoring Bitcoin’s support levels, particularly around the $100,000 mark, with potential resistance seen at $110,000 in the coming weeks.
Some buyers anticipate a “Santa Rally” a term used to describe the Bullish performance of bitcoin during the Christmas holidays. Historical data on this notion has given mixed outcomes.
In previous halving years, Bitcoin often surged during Christmas week, with price moves of 11% to 25% recorded in 2017, 2020, and 2024.
However, analysts warn that current market conditions, including macroeconomic uncertainty and a cautious Fed, could dampen such expectations.
United States Bitcoin strategic reserve in doubts
Aside from the federal rate cuts announced by Powell. He also mentioned that the Central Bank is not allowed to hold Bitcoin unless approved by Congress.
- This statement cast shadows of doubt on the proposed Bitcoin reserve by Donald Trump during his campaign days.
- The President-Elect last week confirmed that his administration hopes to set up a strategic Bitcoin reserve and pilot the dominance of the US in the Global crypto space.
- The FOMC chairman’s speech about the Central Bank not being able to hold Bitcoin cast doubts on the proposed Goal by the Donald Trump administration.
Bitcoin price crashes to $95,000
Business
Dangote reduces petrol price to ₦899.50/litre
Dangote reduces petrol price to ₦899.50/litre
Dangote Petroleum Refinery has slashed the price of its petrol t to ₦899.50 per litre.
Making this known in a statement on Thursday was Anthony Chiejina, Chief Branding and Communications Officer of the Dangote Group.
He said, “Africa’s first privately-owned oil refinery, which previously lowered the price to N970 per litre on November 24, has now announced a new price of N899.50 per litre. This reduction is designed to ease transport costs during the festive period.”
Adding, Chiejina said, “In addition to the holiday discount, Dangote Petroleum Refinery is allowing consumers to purchase an additional litre of fuel on credit for every litre bought on a cash basis.”
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“To alleviate transport costs during this holiday season, Dangote Refinery is offering a holiday discount on PMS. From today, our petrol will be available at N899.50 per litre at our truck loading gantry or SPM. Furthermore, for every litre purchased on a cash basis, consumers will have the opportunity to buy another litre on credit, backed by a bank guarantee from Access Bank, First Bank, or Zenith Bank.”
The statement said the refinery was committed to making sure Nigerians have access to premium quality petroleum products that are competitively priced which are also environmentally and engine friendly.
Dangote reduces petrol price to ₦899.50/litre
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