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The Basic Income Debate (Video)

May 29, 2017 by EconMatters   Comments (0)

By EconMatters

We discuss the idea of Basic Income in this video, we run the numbers from an economic and market perspective, and the numbers aren`t pretty given the population , inflation, debt and government spending trends. We cannot afford a basic income solution without a complete overhaul of our current highly inefficient use of capital, i.e., government spending budget, current and future allocations and commitments, along with waste, inefficiencies, outdated and unnecessary programs, and corruption. The idea of equality of outcome sets the stage for future disappointment along the lines of the goal of creating a wealth effect through artificial policy intervention by Central Banks.

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The Russian Ruble (Video)

May 29, 2017 by EconMatters   Comments (0)

By EconMatters

We discuss the Russian Ruble Currency in this market video against the US Dollar, Silver, Gold and Bitcoin with different timeframes going back over a five year period. It paid to be bold when everyone else was a scared little rabbit and buy the Ruble when things appeared very bleak in the throes of an oil and commodity crash along with several incursions into Ukrainian territory, and all the Geo-political fallout, international sanctions and economic turmoil that followed.

It shows how capable Russia Finance chiefs were and the Ministry of Finance in reacting to difficult times indeed because overall, when we consider all that Russia was up against, they handled this crisis rather well. Raising interest rates to extraordinary levels seemed to be the main focal point of the strategy to fight capital flight and stem the currency collapse of the Ruble, and it worked by my analysis. In short buying the Russian Ruble when there was the proverbial 'blood in the streets' was a bold, counter-trend play that turned out to be highly profitable for traders.

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The Oil Market (Video)

May 28, 2017 by EconMatters   Comments (0)

By EconMatters

We discuss the Oil Market from a fundamental, technical, economical and trading perspective in this comprehensive video on the current state of the oil market after the latest OPEC Meeting and extension of the Price Cut Strategy. The Economics of the market still don't match the Fundamentals of the oil market. The global oil market doesn`t have a place for US Production to be producing 9.5 Million Barrels per Day, which we are on trend and course for reaching in the near term. Ultimately, Oil Prices need to crash, and firms go out of business losing their principal operations in a liquidation event for economic discipline to reassert itself in the oil market. Moving up in short term on back of the OPEC Production Cuts Extension and the stronger demand environment of the Summer Driving Season may provide a nice setup for the next leg down in the oil market.

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Fiji maintains rate as 2017 growth forecast revised up

May 27, 2017 by CentralBankNews   Comments (0)

    Fiji's central bank kept its Overnight Policy Rate (OPR) at 0.50 percent - unchanged since October 2011 - and confirmed last week's upward revision of its 2017 growth forecast to 3.8 percent from October 2016's forecast of 3.6 percent.
     The Reserve Bank of Fiji also said its dual monetary policy objectives remain intact, with inflation easing to 4.1 percent in April from 5.6 percent in March, and foreign reserves of $2.240 billion as of May 25, up from $1.991 billion as of March 30, sufficient to cover 5.6 months of imports.
     Fiji's economy was hit hard in February 2016 by Tropical Cyclone Winston, the worst ever cyclone in the Southern Hemisphere, resulting in higher inflation from a shortage of some food items, including the national drink of yaqona.
      Inflation this year will continue to be affected by domestic supply shortages but price hikes in the wake of the cyclone are expected to taper off, with inflation expected to fall to 3.0 percent by the end of this year as supply normalizes for most agricultural products, according to Barry Whiteside, central bank governor.
      The outlook for Fiji's economy has improved this year due to the spill-over of last year's reconstruction from cyclone-related damages, especially the construction sector, and the wholesale and retail sector benefitting from increased sales of hardware and related building items.
     Except for the sectors of fishery, forestry and mining, all other sectors are supported by buoyant consumption and improving investment activity. Manufacturing will be underpinned by an expected rebound in cane production, Whiteside said.
     Last week the central bank revised upward its 2017 growth projection and maintained its 2018 growth forecast of 3.0 percent compared with 2016's estimated growth of 2.0 percent.
     For 2019 the economy is forecast to grow 2.9 percent.
     Fiji's 2017 current account deficit, excluding aircraft, is forecast around 5.4 percent of Gross Domestic Product but the capital and financial account balance is expected to show a bigger surplus than the 7.0 percent of GDP previously forecast due to higher inflows of foreign direct investment and the disbursement of a US$50 million loan from the Asian Development Bank for cyclone-related recovery work, the central bank said last week.

    The Reserve Bank of Fiji issued the following statement:

"At its monthly meeting on 25 May, the Reserve Bank of Fiji Board agreed to maintain the Overnight Policy Rate at 0.5 percent.

In conveying the decision, the Governor and Chairman of the Board, Mr Barry Whiteside stated that, “domestically, real sector outcomes have been mixed to date, however, aggregate demand conditions remain positive, largely underpinned by buoyant consumption and improving investment activity.
Mr Whiteside added that, “the domestic growth outlook has improved this year, largely from the spill-over of post Tropical Cyclone (TC) Winston related reconstruction activities from 2016, and better-than-expected sectoral performances so far this year. Economic activity continues to strengthen supported by conducive labour market and financial conditions.” With the exception of the fishing, forestry and mining sectors, a broad-based services-led growth of 3.8 percent is forecast for the Fijian economy in 2017, following an estimated 2.0 percent expansion last year.

On the external front, Mr Whiteside highlighted that the global economy is expected to gain momentum this year, led by growth in advanced economies while prospects for emerging and developing economies remain uneven. Risks to the projections remain downward biased and include widening global imbalances and increased geopolitical tensions in the Middle East, North Africa and Korean peninsula, which can have negative repercussions for Fiji’s trading partners and eventually our external sector. On the upside, a relatively low commodity price environment continues to augur well for our commodity-importing country, particularly as import demand picks up to meet the ongoing recovery needs.”

The dual monetary policy objectives of the Bank remain intact. Inflation fell to 4.1 percent in April 2017 from 5.6 percent in March, after remaining above the 5.0 percent mark in the first quarter of this year. Inflationary pressures in 2017 continue to be dominated by domestic factors, mainly supply shortages of certain market items (particularly yaqona) which have kept prices elevated following TC Winston. However, annual inflation is expected to fall to 3.0 percent by year-end as supply for most agricultural produce normalises. As of 25 May, foreign reserves were around $2,240.0 million, sufficient to cover 5.6 months of retained imports of goods and non-factor services.

The Governor concluded that the Reserve Bank will continue to closely monitor developments and risks to the global and domestic outlook and align monetary policy as warranted."


Ukraine cuts rate another 50 bps and sees further easing

May 27, 2017 by CentralBankNews   Comments (0)

    Ukraine's central bank cut its policy rate by a further 50 basis points to 12.50 percent and said it may continue easing its monetary policy, with the speed and size of further rate cuts based on how fast inflation falls towards the bank's target this year and in 2018.
     The National Bank of Ukraine (NBU) has now cut its rate 150 basis points this year and by 1,750 points since embarking on its easing cycle in August 2015.
     Last year the central bank cut its key rate by 800 basis points and said it expects to cut the rate this year "less markedly," noting the rate started this year at 14.0 percent. In April the NBU cut the rate by 100 basis points.
      The central bank added that an easing of its monetary policy could take other forms than rate cuts, such as a relaxation of administrative restrictions in the foreign exchange market.
      Ukraine's inflation rate fell to 12.2 percent in April from 15.1 percent in March as the exchange rate of the hryvnia continued to appreciate due to inflow of foreign exchange from agricultural and metallurgical exports despite the negative impact from halted freight traffic and the seizure of companies in the rebel-held easter regions of the country.
      The central bank said its inflation targets for 2017 and 2018 "remain within reach" and disruptions from halted freight traffic should have no significant impact on inflation.
     Inflation in May is likely to accelerate due to higher food prices and administered prices.
     The NBU targets inflation of 8.0 percent, plus/minus 2 percentage points, in 2017 and 6.0 percent, plus/minus 2 percentage points, in 2018. In its April inflation report, the central bank forecast that inflation would slow to 9.1 percent by the end of this year and 6.0 percent by end-2018.
      A major risk to reaching this target comes from the government's fiscal policy, with the NBU saying there is a risk that higher social standards and wages could be raised too much.
      The value of the hryvnia plunged by 66 percent from the start of 2014 to the end of 2015 but has been appreciating since mid-January this year.
     Today the hryvnia was trading at 26.28 to the U.S. dollar, up 2.7 percent since the start of this year, with the NBU saying it has remained committed to a flexible exchange rate regime and not countered the rise in the exchange rate but purchased excess foreign exchange to replenish its foreign reserves, with purchases topping US$1 billion this year.
      The stable situation in the foreign exchange market has helped lower inflation expectations and households have continued to actively sell foreign currency, allowing banks to maintain a supply of foreign exchange. Banks have purchased US$982 million this year, the central bank said.
     Ukraine's economy is also improving as consumer demand gains momentum, with retail turnover up by 6.1 percent year-on-year in April.
     But Ukraine's economy slowed in the first quarter as industrial output was hit by the stop in freight traffic between the government-held part of the country and the rebel-held Donetsk region.
     Gross Domestic Product grew by an annual 2.4 percent in the first quarter of this year, down from 4.8 percent in the previous quarter.

    The National Bank of Ukraine issued the following press release:

"The  Board of the National  Bank of Ukraine has decided to cut the key policy rate to  12.5%, effective 26 May 2017. The decision to ease monetary policy is consistent with the pursuit of inflation targets set for 2017-2018 and will help propel the economic growth in Ukraine.
As expected, headline inflation slowed to 12.2% yoy in April 2017.  The slowdown was  primarily due to the waning base effect (natural gas tariffs surged in April 2016, which affected this year's comparison base).
In April, actual inflation came in slightly below the projected path of annual headline inflation published by the NBU in the Inflation Report (April 2017), envisaging a slowdown in the annual CPI to 9.1% by the end of 2017. The shortfall can be attributed to weaker-than-expected underlying inflation pressures. 
Thus, in April, the hryvnia continued to appreciate against U.S. dollar, underpinned by substantial FX revenues from agricultural exports. Also, Ukraine continued to enjoy significant FX revenues from metallurgical exports despite the negative effect of the halted freight traffic across the contact line in Donetsk and Luhansk Oblasts and the seizure of enterprises in the non-government controlled areas of Ukraine.  Meanwhile, households continued to actively sell foreign currency in the cash FX market, with banks’ net FX purchases having reached USD 982 million since the start of the year.   This allowed banks to maintain the foreign exchange supply in the interbank FX market. 
In its turn, the NBU, remaining committed to a flexible exchange regime, did not counteract a gradual appreciation of the hryvnia but  has been purchasing an excess supply of foreign currency in the interbank market to replenish international reserves. Overall, the NBU’s net FX purchases have reached over USD 1 billion since the beginning of the year.   
The stable situation in the FX market brought about an improvement in inflation expectations. As a result, core inflation remained flat at 6.3% in April, while the NBU had projected it to accelerate slightly.
According to the preliminary estimates of the NBU, inflation in annual terms accelerated  in May, which was in line with inflation forecast, published in April. This acceleration was primarily driven by a rise in raw food prices and an increase in administered prices and tariffs.
In the meantime, consumer demand is gradually gaining momentum, which was also incorporated in the macroeconomic forecast approved at the previous NBU Board meeting on monetary policy. Thus, real wages kept increasing, including due to an increase in the minimum wage from the beginning of the year. As a result, retail trade turnover continues to recover, having increased by 6.1% yoy in April.
Overall, economic growth indicators are close to the NBU projections. In Q1 2017, real GDP rose by 2.4% yoy. The slower pace of GDP growth compared to the end of 2016 can be attributed to the halted freight traffic across the contact line in Donetsk and Luhansk Oblasts and the seizure of enterprises in the non-government controlled areas of Ukraine.  These developments brought about a decline in industrial production and adversely affected the wholesale trade and freight transportation performance.
The NBU considers that the inflation targets for 2017 and 2018 (8%+/-2 pp and 6%+/-2 pp, respectively) remain within reach.
According to the inflation projections published in the Inflation Report last month, inflation is expected to slow to 9.1% by the end of 2017 and to 6.0% by the end of 2018.
Slower regulated price inflation and tight monetary and fiscal policies will be the major driving force behind the disinflation. Meanwhile, a gradual recovery in consumer demand and potential supply-side shocks in global food commodity markets will pressure inflation upwards. A weakening of US dollar in global markets that can potentially push up import prices for goods, also adds to inflationary pressures.
As before, the NBU expects that the halted freight traffic across the contact line in the Donetsk and Luhansk oblasts will have no significant impact on the headline inflation.
A major risk for the achievement of inflation targets for 2017-2018 arises from a departure from the prudent fiscal policy. In particular, there is a risk that the government will raise social standards and wages to a level higher than that consistent with the meeting of inflation targets. 
The NBU considers the implementation of a pension reform to be a vital step to ensure sustainable public finances and hence price stability in a long-term perspective. However, over the short-term, a hike in pension payments can push consumer demand up.  Consequently, the NBU may be required to adjust its policy to level off short-term repercussions of such an increase on price dynamics.  
A further progress in structural reforms, especially those specified as Ukraine’s commitments under the EFF program with the IMF, is necessary to preserve the macrofinancial stability.
Bearing in mind the inflation forecast and the balance of risks pertaining its implementation, the NBU Board has decided to cut its key policy rate to 12.5%.
Looking ahead, the NBU may continue easing the monitory policy, provided the mentioned risks will be diminishing in a sustainable manner.  
The speed and the size of a further key policy rate cut will be conditioned on the assessment of mid-term risks associated with the achievement of inflation targets in 2017, and, more importantly, in 2018. In contrast to 2016 when the key policy rate was cut by 8 p.p., the rate is expected to decrease less markedly in 2017, at the beginning of which the rate was 14% per annum.  
At this, the easing of monetary policy, when proceeded, can take different forms - both by reducing key policy rate and relaxing administrative restrictions in the FX market. 
The key policy rate cut to 12.5% has been approved by NBU Board Decision No. 318-D On the Key Policy Rate of 25 May 2017.
The next meeting of the NBU Board on monetary policy issues will be held on 6 July 2017 as scheduled."


Canada holds rate, says data, investment "encouraging"

May 27, 2017 by CentralBankNews   Comments (0)

    Canada's central bank left its benchmark target for the overnight rate at 0.50 percent, as widely expected, and described economic data as "encouraging," including that of business investment, and that the country's economy had now largely adjusted to lower oil prices.
     But while the Bank of Canada (BOC) was more upbeat about the economic outlook, it said inflation remains below its 2 percent target as food prices continue to decline and wage growth remains subdued, consistent with continued "ongoing excess capacity" in the economy.
      The BOC has maintained its rate since July 2015 but based on an improving economy, economists are looking for the bank to signal that it will start to tighten its policy and at least unwind two rate cuts in 2015 to cushion the economy from the fall in crude oil prices.
      In its previous statement from April, the BOC said economic growth had been faster than it expected but business investment remained well below what could be expected. Today's statement shows that the bank is encouraged by rising business investment.
       Last month the BOC also said there was "material excess capacity" in the economy, a slightly more downbeat view than in today's statement when it omitted "material."
      But exports from Canada, remain subdued, as the central bank expected, and strong growth in the first quarter of this year is likely to be followed by some moderation in the second quarter.
     Canada's dollar weakened steadily against the U.S. dollar from 2013 through 2015 before bouncing back in early 2016. But since April last year, the Canadian dollar - known as the loonie - has been trending lower although it has risen in the last month.
     The loonie was trading at 1.35 to the U.S. dollar today, largely unchanged this year but up by 3 percent since the start of 2016.
     The BOC, which will update its economic forecast in July, said low inflation was broadly as it had expected. In its April outlook, BOC forecast that inflation would dip in coming months before slowing returning to 2 percent as the output gap closes.
     Canada's headline inflation was steady at 1.6 percent in April and March and BOC forecasts last month that inflation will average 1.9 percent this year, 2.0 percent in 2018 and 2.1 percent in 2019.
     In April the BOC raised its growth forecast for this year to 2.6 percent from 2.1 percent, up from 2016 growth of 1.4 percent. Growth in 2018 and 2019 was forecast just below 2 percent.

     The Bank of Canada issued the following statement:

"The Bank of Canada is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
Inflation is broadly in line with the Bank’s projection in its April Monetary Policy Report (MPR). Food prices continue to decline, mainly because of intense retail competition, pushing inflation temporarily lower. The Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.
The global economy continues to gain traction and recent developments reinforce the Bank’s view that growth will gradually strengthen and broaden over the projection horizon. As anticipated, growth in the United States during the first quarter was weak, reflecting mostly temporary factors. Recent data point to a rebound in the second quarter.  The uncertainties outlined in the April MPR continue to cloud the global and Canadian outlooks.
The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.
All things considered, Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent."

Tunisia raises rate another 25 bps to curb inflation

May 27, 2017 by CentralBankNews   Comments (0)

     Tunisia's central bank raised its key interest rate by a further 25 basis points to 5.0 percent in order to limit the impact on the economy from rising inflationary pressure and a growing current account deficit.
     The Central Bank of Tunisia (CBT) has now raised its rate by a total of 75 basis points this year following a 50 point hike in April at an extraordinary meeting of its board following a sharp fall in the dinar's exchange rate.  This was the CBT's first change in rates since October 2015.
     Meeting on May 23, the CBT board said it had taken note of the rise in inflation in recent months.
     Tunisia's headline inflation rate rose to 5.0 percent in April from 4.8 percent in March and 3.4 percent in April last year. Underlying inflation, which excludes fresh and farmed products, was 5.9 percent.
      The central bank said there was growing pressure on bank liquidity from a widening current account deficit and an increased need for funds by the state budget. This has led the central bank to step up its interventions in the money market.
      The central bank also said it had worked to ensure a balance between supply and demand in the foreign exchange market to help mitigate fluctuations and gradually restore stability.
      The April rate hike came in the wake of a slump in the dinar following a call by the International Monetary Fund on Tunisia to adopt a more flexible exchange rate. Tunisia's finance minister then said the central bank would reduce its interventions in the foreign exchange market to the value of the dinar gradually declines to help boost exports and lower imports, reducing the trade deficit.
      The IMF also said on April 17 that tighter monetary policy would help counteract inflationary pressures, give further flexibility to the exchange rate, and narrow the trade deficit.
     On April 20 and 21 the dinar fell by almost 9 percent to 2.52 to the U.S. dollar but it then rebounded in the following days. 
     Today the dinar was trading at 2.42 to the dollar, down almost 5 percent this year.
     The central bank welcomed improved economic growth in the first quarter of this year and called for further consolidation of growth in light of the major economic challenges and financial difficulties facing the country.
     Tunisia's Gross Domestic Product grew by an annual rate of 2.1 percent in the first quarter of this year, up from 1.1 percent in the fourth quarter of last year.
     The IMF expects growth to double this year to 2.3 percent. However, this is still too sluggish to significantly lower unemployment, especially in the interior parts of the country and among the youth.
    Tunisia's official unemployment rate eased to 15.3 percent in the first quarter from 15.50 percent in the previous two quarters.



Thailand holds rate as outlook for growth improves

May 27, 2017 by CentralBankNews   Comments (0)

    Thailand's central bank left its policy rate at 1.50 percent, as widely expected, but was slightly more optimistic about the outlook for economic growth as exports continue to recover and improved farm income and consumer confidence bolsters private consumption.
     The Bank of Thailand (BOT), which has maintained its rate since April 2015, added that inflation has been softer than expected but is still expected to rise in the second half of the year.
     "The Committee assessed that the Thai economy's growth outlook improved further despite facing risks especially on the external front," the BOT said, a more optimistic tone than in its previous policy statement from March when it said the economy "continued to gain traction," but there were considerable uncertainties related to the global economy.
      But unlike its March statement, when the BOT said the a recent appreciation of the Thai baht "might not be as beneficial to the economy as it could," today it merely observed that the exchange rate in the recent period was in line with regional currencies.
     The baht fell sharply from the "taper tantrum" of April 2013 to September 2015 but since then it has been slowly appreciating, especially this year.
    The bath was trading at 34.36 to the U.S. dollar today, up 4.2 percent this year. 
     Thailand's economy expanded by 1.3 percent in the first quarter of this year from the previous quarter for the fastest pace since the fourth quarter of 2012, boosted by consumption and exports.
     On an annual basis, Gross Domestic Product was up 3.3 percent, up from 3.0 percent in the fourth quarter of last year, as tourism also continued to recover, as expected. Public spending continues to remain an important driver of economic activity.
     The government's planning agency has raised its outlook for export growth this year to 3.6 percent from a previous 2.9 percent and narrowed its overall 2017 growth forecast to 3.3 - 3.8 percent from 3.0 - 4.0 percent. Thailand grew 3.2 percent in 2016.
     Inflation, however, remains far below the BOT's target range of 1- 4 percent, around a midpoint target of 2.5 percent, with little sign of demand-pull pressure.
     Thailand's headline inflation rate eased to 0.38 percent in April from 0.76 percent in March due to lower fresh food prices as agricultural output has risen compared with last year's drought.
      In March the BOT lowered its forecast for 2017 inflation to 1.2 percent from 1.5 percent.

     The Bank of Thailand issued the following statement:


"The Committee voted unanimously to maintain the policy rate at 1.50 percent.

In deliberating their policy decision, the Committee assessed that the Thai economy’s growth outlook improved further despite facing risks especially on the external front. Headline inflation softened and might fall below the target in some periods mainly due to supply side factors. Nevertheless, it was projected to rise during the latter half of the year. Meanwhile, overall financing conditions remained accommodative and conducive to economic growth. Hence, the Committee decided to keep the policy rate unchanged at this meeting.

Further improvement in the growth outlook was attributed to the continued recovery in merchandise exports as Thailand’s trading partner economies gained momentum. In addition, private consumption picked up somewhat supported by improved farm income and consumer confidence. Tourism continued to recover as expected, and public expenditure remained an important growth driver. Meanwhile, private investment was projected to slowly recover. However, the improved growth outlook was still subjected to risks that warranted close monitoring. These included US economic and foreign trade policies, China’s economic structural reforms, and geopolitical risks.

Headline inflation turned out softer than expected on account of lower fresh food prices due to this year’s higher agricultural output and last year’s base effects following the drought. Meanwhile, demand-pull inflationary pressure remained low. Nevertheless, headline inflation was expected to gradually rise in the latter half of the year, and the public’s medium-term inflation remained close to the midpoint of the target.

Overall financial conditions remained accommodative and conducive to economic growth with ample liquidity in the financial system and low real interest rates. Meanwhile, business financing through both credit and capital markets continued to expand. With regard to exchange rates, movements in the baht over the recent period were in line with regional currencies.

The Committee viewed that financial stability remained sound with sufficient cushion against economic and financial volatilities on both domestic and external fronts. However, there remained pockets of risks that warranted close monitoring such as the deterioration in debt serviceability of small-and-medium sized enterprises (SMEs) which in part reflected competitiveness issues. Moreover, the search-for-yield behavior in the prolonged low interest rate environment continued to warrant monitoring as it could lead to underpricing of risks.

Looking ahead, the Thai economy’s growth outlook improved further despite uncertainties on the external front. Meanwhile, demand-pull inflationary pressures remained low. Thus, the Committee viewed that monetary policy should remain accommodative, and would stand ready to utilize available policy tools to sustain economic growth while also ensuring financial stability."


Nigeria holds rate, easing may worsen inflation pressure

May 27, 2017 by CentralBankNews   Comments (0)

    Nigeria's central bank left its Monetary Policy Rate (MPR) at 14 percent, as expected, and said it was concerned "that loosening would exacerbate inflationary pressures and worsen the gains so far achieved in the exchange rate of the naira."
     The Central Bank of Nigeria (CBN), which has maintained its rate since raising it by 200 basis points in July 2016, added its monetary policy committee was reluctant to alter the current policy against the backdrop of an unclear outlook for key economic activities, especially food production, some optimism about the deceleration in inflation and the relative stability of the naira.
     The policy committee voted unanimously by 8 members - one member was absent - to retain the policy rate "in consideration of the challenges weighing down the domestic economy and the uncertainties in the global environment."
     While the CBN welcomed the recent decline in inflation, the relative stability of the naira's exchange rate and the improved prospect of an inflow of foreign investment, it added inflation remains "significantly" above its reference band of 6-9 percent.
     Nigeria's inflation rate eased to 17.24 percent in April, the third month of declining inflation, hitting the lowest rate since July 2016.
     Part of the reason for decelerating inflation is due to there recent gains in the naira's exchange rate, due to the bank's interventions in the foreign exchange market, and the downward move in the prices of imported goods.
    "Against this background, the Committee emphasized the need to sustain and deepen the bank's foreign exchange management policies and measures in order to reap the benefits of the pass-through to consumer prices," the CBN said.
      Nigeria has suffered from a shortage of U.S. dollars since the fall in crude oil prices in 2014 and the central bank has only recently begun to ease some of its restrictions and capital controls that were imposed in 2015 to shore up  the naira's exchange rate.
     The official exchange rate of Nigeria's naira has been largely unchanged since August last year, trading around 315 to the U.S. dollar. In June 2016 the CBN removed its naira peg of 197 to the dollar, resulting in an immediate 30 percent drop in its value.

      The Central Bank of Nigeria issued the following communique:

The Monetary Policy Committee (MPC) met on the 22nd and 23rd of May, 2017, against the backdrop of slowly improving global growth prospects even as international cooperation continues to be threatened by anti-globalization sentiments in major advanced economies. On the domestic front, the economy has shown greater resilience in the intervening period since the last meeting of the Committee, anchored on more focused macroeconomic policies and improvements in oil prices. While the general economic outlook seems cautiously optimistic for the remainder of fiscal 2017, emerging indicators suggest that economic policy must remain circumspect.
In attendance were 8 out of 12 members of the Committee. The MPC assessed the global and domestic economic and financial environments in the first five months of 2017 and the outlook for the rest of the year.

External Developments
The global economy continued to gather momentum in Q1, 2017, aided by gradual recovery in the emerging markets on the back of a pick-up in global demand and higher commodity prices, coupled with fairly robust domestic demand in the advanced economies. Accordingly, global output growth in Q1 2017 is estimated to expand by 2.8 per cent annualized. In spite of the fairly optimistic global economic outlook, uncertainty surrounding the direction of macroeconomic policy in the advanced economies continues to cloud the prospects of sustained recovery. Global inflation appears to be upward trending on the back of improved commodity prices and depreciated currencies in several emerging markets.

Domestic Output Developments

Data from the National Bureau of Statistics (NBS) showed that the economy contracted marginally by 0.52 per cent in Q1 2017, a much more positive development since Q1 2016. The data also shows that about eighteen (18) economic activities recorded positive growth in Q1 2017; indicating that the economy was firmly on the path of recovery. The key growth activities were led by quarrying (52.54%), metal ores (40.79%), road transportation (12.35%), water supply and sewage (12.63%), fishing (5.49%), crop production (3.5%), oil refining 93.01%), motion pictures (2.95%), telecommunication (2.89%), forestry (2.59%), amongst others. The Committee noted the positive effects of improved foreign exchange management on the performance of the manufacturing sector and other economic activities. The non-oil sector grew by 0.72 per cent in Q1 2017, largely reflecting the growth recorded in agriculture and solid minerals, and recovery in manufacturing, construction and services sectors. The Committee urged the fiscal authorities to expeditiously commence the implementation of the recently approved 2017 budget, especially, the capital expenditure portion, in order to sustain the momentum of recovery, engender employment and restore confidence in the Nigerian economy.

 Developments in Money and Prices

The committee noted that money supply (M2) contracted by 8.48 per cent in April 2017, annualized to a contraction of 25.44 per cent in contrast to the provisional growth benchmark of 10.29 per cent for 2017. Net Domestic Credit (NDC) grew by 1.40 per cent in April, 2017, annualized to 4.21 per cent, which is significantly below the 17.93 per cent provisional growth benchmark for 2017. However, net credit to government grew by 24.08 per cent over end-December 2016, representing an annualized growth of 72.0 per cent. The Committee was concerned that credit to government continued to outpace the programmed target of 33.12 per cent for fiscal 2017, while credit to the private sector declined considerably far below the programmed target of 14.88 per cent.
Headline inflation (year-on-year) moderated for the third consecutive month, falling to 17.24 per cent in April, from 17.26 per cent in March, 17.78 per cent in February and 18.72 per cent in January 2017, effectively reversing the monthly upward momentum since January, 2016. The food index component, however, rose to 19.30 per cent in April, from 18.44 per cent in March and 18.53 per cent in February, 2017. The moderation in headline inflation in April, 2017 thus reflected the decline in the core component to 14.80 per cent in April from 15.40, 16.01, and 17.87 per cent, respectively in March, February and January, 2017. Similarly, month-on-month inflation moderated to 1.60 per cent in April from 1.72 per cent in March, 2017.

The Committee attributed these developments in part to the effects of the recent gains in the naira exchange rate, brought about by the Bank’s interventions in the foreign exchange market and the resulting downward price adjustments on imported items and their derivatives. Against this background, the Committee emphasized the need to sustain and deepen the Bank’s foreign exchange management policies and measures in order to reap the benefits of the pass-through to consumer prices. The MPC recognized the continued influence of structural factors such as high energy and transportation costs, production bottlenecks on prices and hoped that the ongoing reforms by the Government would address some of these constraints.

Money market interest rates moved in tandem with the level of liquidity in the banking system. Rates were relatively stable during the review period. The interbank call rate opened at 11.40 per cent on March 22, 2017 and closed at 38.94 per cent on May 18. The movement in net liquidity position was influenced by sales at the Open Market Operations, foreign exchange interventions, the payment of statutory revenues to States and Local Governments as well as maturing CBN Bills.

The MPC noted the bullish trend in the equities segment of the capital market as the All-Share Index (ASI) rose by 10.20 per cent from 25,516.34 on March 31, 2017, to 28,113.38 on May 19, 2017. Similarly, Market Capitalization (MC) increased by 10.10 per cent from N8.83 to N9.72 trillion during the same period. Relative to end-December 2016, the capital market indices rose by 4.60 and 5.10 per cent, respectively, reflecting growing investor confidence following improvements in foreign exchange supplies reflected in the over US$1 billion injected through the investor window and exchange rate management. Total foreign exchange inflows through the CBN increased by 69.77 per cent in April, 2017 compared with the previous month. Total outflows, however, rose, but less significantly, at 29.35 per cent during the same period. Consequently, the Committee observed that the average naira exchange rate remained stable at the inter-bank segment of the foreign exchange market in the review period.

2.0. Overall Outlook and Risks
Available data and various forecasts of key economic variables as well as assessment of government initiatives, including the recently released Federal Government Economic Recovery and Growth Plan (ERGP), all point to prospects of recovery in 2017. The Committee expects that the timely implementation of this plan, judicious execution of the approved 2017 Budget and sustenance of the new foreign exchange implementation regime supported by the restoration of security in different parts of the country, especially, in the Niger Delta region, would help accelerate growth and restore confidence in the economy. The MPC however, identified the downside risks to this outlook to include the possibility of low oil prices due to renewed investments in shale oil exploration and production, continuing monetary policy normalization by the U.S. Fed which may result in strengthening of the U.S dollar, and consequent capital reversal from Nigeria and other emerging market economies. Also, the MPC believes that the inflation outlook does not appear benign as the limit of the base effect driving the current moderation in prices may have been reached.

3.0. The Considerations of the Committee

Notwithstanding the improved outlook for the economy, the Committee weighed the implications of continuing global uncertainties arising from the dwindling commitment to global cooperation, the strengthening of the U.S. dollar, and the unsteady commodity prices. The Committee similarly evaluated other challenges confronting the domestic economy and the opportunities for achieving economic growth and price stability in 2017. The MPC was of the view that whereas the downward trend in inflation in April 2017 is a welcomed development; the rate was still significantly above the policy reference band.

The MPC is particularly pleased with the gradual retreat in inflation, the relative stability in the Naira exchange rate across all segments of the foreign exchange market and the improved prospects of foreign investment inflow. The Committee also welcomes the passage of the 2017 Budget and called on the relevant authorities to ensure its judicious implementation, especially, the capital budget in line with the Economic Recovery and Growth Plan. It, however, noted the associated risks to banking system liquidity of the envisaged fiscal injections during the remainder of the year. Against this risk, the Committee contemplated the prospects of further tightening of monetary policy should the need arise. The MPC however, noted that further tightening would widen the income gap, depress aggregate consumption and adversely affect credit to the real sector of the economy.

Nevertheless, against the backdrop of the rather unclear outlook around key economic activities (food production especially) and some optimism about current deceleration in inflation as well as relative stability in the naira exchange rate, the MPC was reluctant to alter the current policy configuration in any fundamental manner. This is intended to allow the existing policies to fully achieve their intended goals and objectives. On the other hand, the Committee noted that the cost of capital in the economy remains high and not helpful to growth. The MPC was however, concerned that loosening would exacerbate inflationary pressures and worsen the gains so far achieved in the exchange rate of the naira. It was also convinced that loosening would further increase the negative real interest rate as the gap between the nominal interest rate and inflation widens.
On the financial stability outlook, the Committee noted that in spite of the banking sector’s resilience, the weak macroeconomic environment has continued to exert pressure on the banking system. The MPC urged the CBN to intensify its surveillance, in order to address emerging vulnerabilities. The Committee also called on the DMBs to step up credit to the private sector to support economic recovery and convey a positive feedback to the financial system.

4.0. The Committee’s Decisions
In consideration of the challenges weighing down the domestic economy and the uncertainties in the global environment, the Committee decided by a unanimous vote of the 8 members in attendance to retain the MPR at 14.0 per cent alongside all other policy parameters. One member was absent at the meeting. In summary, the MPC decided to:
(i) Retain the MPR at 14 per cent;
(ii) Retain the CRR at 22.5 per cent;
(iii) Retain the Liquidity Ratio at 30.00 per cent; and

(iv) Retain the Asymmetric corridor at +200 and -500 basis points around the MPR"