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.
Breaking: CBN jacks up interest rate to 15.5%
The Central Bank of Nigeria (CBN) has raised the monetary policy rate (MPR), which measures interest rate, from 14 per cent to 15.5 per cent to tame rising inflation.
The interest rate was raised from 13 per cent to 14 per cent in July this year.
The monetary policy rate is the baseline interest rate in an economy, every other interest rate used within an economy is built on.
Governor of the CBN, Godwin Emefiele, addressing journalists on Tuesday after the committee’s meeting in Abuja, said 10 members of the committee voted for the rate hike.
In August, Nigeria’s inflation rate rose to a nearly two-decade high at 20.52 per cent.
Lamborghini pushes out final Aventador, Ultimae, ends V12 supercar
Supercar manufacturer, Lamborghini, has announced the production of the last Aventador. You can call it Avantador’s last dance. The final Lamborghini Aventador Ultimae was rolled off the production line in Sant’Agata, Italy, and kissing goodbye to V12-powered supercar that shaped an era. The Lamborghini V12 will be hybridised going forward.
This Ultimae Roadster marks the 11,465th Aventador to reach customers worldwide. First launched in 2011, the Aventador is not exactly modern, but when it debuted, it was described by CEO Stephan Winkelmann as “a jump of two generations in terms of design and technology,” with “performance that is simply overwhelming.”
A plug-in hybrid replacement is expected to be revealed later this year, having been spied testing.
Lamborghini made sure the final model was the most powerful, with the 6.5-litre unit producing 10bhp more than in the previous range-topping Aventador, the Lamborghini Aventador SVJ, sending 769bhp (780PS, hence the name) to both axles. The Aventador-based Essenza SCV12 produces 819bhp but is limited to track use.
The Ultimae’s 531lb ft torque peak matches the SVJ’s, with which it shares its power- to-weight ratio. But with a 0-62mph time of just 2.8sec and a top speed of 221mph, the Ultimae is the fastest road-going Aventador.
The 350 coupés and 250 roadsters – each sold with a numbered plaque – were offered in a range of unique colour schemes, including a new grey-on-grey option with contrasting red trim elements, while the roadster could be specified with an exposed carbonfibre roof panel. It was also subtly marked out from other Aventadors by way of a unique styling package that “took the best components” of the S and SVJ.
The Aventador’s plug-in hybrid replacement will serve as a bridge to pure-electric Lamborghini models in the future.
This electrified future will see the Hurácan and Lamborghini Urus also go down the same route, and an all-electric 2+2 introduced in the second half of the decade.
Importantly, however, while its replacement will use an electrified drivetrain, it will take the bulk of its power from a large-capacity V12, in line with company boss Stephan Winkelmann’s commitment to the emotional value of its supercars.
He told Autocar last year that there is “a lot of emotion attached” to the 12-cylinder engine, which he is particularly aware of, having been involved in the launch of the Aventador in his first stint as the boss of Lamborghini in 2011.
How to use your pensions for mortgage
The National Pension Commission recently approved the guidelines to access Retirement Savings Account balance for payment of equity contribution for residential mortgage by RSA holders.
The approval was in line with Section 89 (2) of the Pension Reform Act 2014, which allows RSA holders to use a portion of their RSA balance towards payment of equity for residential mortgage.
PenCom however specified conditions to access the funds. A major condition is that the applicant must be in active employment, either as a salaried employee or as a self-employed person.
It stated that application for equity contribution for residential mortgage must be in person and not by proxy.
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