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Fed Makes Emergency Rate Cut, What Does this Mean for Nigeria?

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By Lukman Otunuga, Senior Research Analyst at FXTM,

The Federal Reserve caught markets completely off-guard this week by lowering interest rates by 50 basis points.

It’s the first unscheduled, emergency rate cut since October 2008 and also marks the biggest one-time cut since then.

 

Rising concerns over the coronavirus outbreak impacting economic growth have forced central banks across the world to ease monetary policy with the Federal Reserve joining the squad. According to the Fed, “the fundamentals of the U.S economy remain strong. However, the virus poses evolving risks to economic activity.” This emergency rate cut certainly opens doors to further rate cuts in the future which is good news for emerging markets including Nigeria.

Lower US interest rates may provide an opportunity for the Central Bank of Nigeria to ease monetary policy in an effort to stimulate consumption which accounts for 80% of GDP. These efforts may be complicated by inflation which rose for the fifth straight month to 12.3% in January 2020. Although one of the central bank’s objective is to achieve price stability, a rate cut in the face of the coronavirus outbreak could support economic growth in 2020.

Sentiment towards the Nigerian economy has improved over the past few weeks amid positive economic fundamentals and encouraging Q4 GDP data. However, falling oil prices, global growth concerns and questions whether Nigeria will meet its oil revenue goal have fostered a sense of caution.

On the bright side, Nigeria reclaimed its title as the largest economy in Africa after South Africa entered a technical recession. Unstable domestic conditions inspired by power cuts weighed heavily on output and business confidence in South Africa with shaky global conditions compounding to the pain. While Nigeria was able to expand 2.55% in Q4, South Africa’s economy went the other direction by contracting 1.4%.

It remains uncertain whether Nigeria will be able to mirror a similar expansion in Q1 of 2020 due to severely depressed Oil prices and slowing global growth. The commodity has dropped over 20% since the start of the year and could weaken further on demand side fears. Given how roughly 90% of export earnings and over 50% of government revenues are from crude exports, this certainly presents significant risks to economic growth.

The government needs to find other sustainable revenue sources to reduce exposure to external risks. It is widely known that diversification remains the key to Nigeria’s woes but this requires massive investments in infrastructure and time. There has been a push to expanding the tax base to raise non-oil revenues, but it remains to be seen whether this will have the desired results. Value added tax (VAT) has been increased from 5% to 7.5%. This could line the government’s coffers but it may come at the expense of rising inflation.

All eyes will be on the OPEC meeting this week which is expected to conclude with the cartel initiating deeper supply cuts. While such an outcome could push oil prices higher, the upside will most likely be limited by demand side uncertainties fuelled by the virus outbreak.

 


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Ugo Onwuaso is an ICT enthusiast. He believes technology should be used for general good. He holds a Master of Public Administration (MPA) degree from the Lagos state University.

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E-Financial

CBN Investigates 55 Companies over Forex Infractions

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Amidst sustained pressures on Nigeria’s official foreign exchange resources, the Central Bank of Nigeria (CBN), has opened investigations into foreign exchange transactions of 55 companies and individuals.

The apex bank linked them to foreign exchange deals outside the official Investors & Exporters (I&E) window.

CBN Investigates 55 Companies over Forex Infractions

Mr. Godwin Emefiele, CBN governor

The I&E window was created by the CBN as the legitimate platform for buying and selling of foreign currencies.

Some of the major corporate organisations in the list include Stallion Nigeria Limited, a conglomerate involved in several sectors of the Nigerian economy.

The list also includes Nigeria’s leading electronic payment company, Interswitch Nigeria Limited, as well as a leading global shipping line, CMA CGM Nigeria Shipping Limited.

Other big names in the list include Petro-Afrique Energy Services Limited, Steel Force Far East Limited, Auto Petroleum Company Limited, Cavendish Mechanicals Limited, Aquashield Oil & Marine Limited, Haitch & Elf Integrated Services Limited, Fenog Nigeria Limited, and Promasidor Nigeria Limited.


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FG Makes u-Turn on Bank Account Re-Registration

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Federal government on Friday apologised for asking all account holders in financial institutions in the country to re-register their personal details.

FG makes u-Turn on Bank Account Re-Registration

Recall that the federal government had on Thursday ‎ordered that all persons holding accounts across financial institutions and insurance firms should complete and submit self-certification forms to their respective financial institutions.

The notice issued by the government to that effect read, ‎“This is to notify the general public that all account holders in Financial Institutions (Banks, Insurance Companies, etc.) are required to obtain, complete, and submit Self – Certification Forms to their respective Financial Institutions.

“Persons holding accounts in different financial institutions are required to complete and submit the form to each one of the institutions. The forms are required by the relevant financial institutions to carry out due diligence procedures, in line with the Income Tax Regulations 2019.‎”

The directive raised eyebrows, as account holders already possessed Bank Verification Numbers.

Following widespread condemnation that trailed the directive, the Federal Government backtracked on Friday, saying the fresh guidelin‎e was not for all Nigerians.

The government attributed the development to misinformation.

The clarification issued by the government on Friday read, ‎“We apologise for the misleading tweets (now deleted) that went up yesterday, regarding the completion of self-certification forms by Reportable Persons. The message contained in the notice does not apply to everybody. ‎FIRS will clarify Nigerians on the objectives of the directive.”

Also on Friday, FIRS, in a statement posted on Twitter, explained that the guidelines were only for non-residents, as well as people paying tax in more than one country.

Parts of the FIRS statement read, “The Self Certification Form is basically to be administered on Reportable Persons, holding accounts in Financial institutions, that are regarded as “Reportable Financial Institutions” under the CRS.

“Reportable persons are often non-residents and other persons, who have residence for tax purposes in more than one jurisdiction or country.”

“The information that indicates an account holder is a resident for tax purposes in more than one jurisdiction, is expected to be available to Financial Institutions during account opening processes, for the KYC and AML purpose.”


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Stanbic IBTC Bank Disowns Lagos ATM Fraudster

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Stanbic IBTC Bank PLC has disowned Tope Olajide, 22-year-old fraudster arraigned for theft of customers deposits.

Stanbic IBTC Bank Disowns Lagos ATM Fraudster

The Bank said this in a statement on Wednesday.

The statement said: “The attention of the management of Stanbic IBTC Bank PLC has been drawn to news currently circulating in the media, about the alleged arraignment of staff of the Bank on charges bordering on the theft of customers deposits.

“The Bank would like to clarify that the defendant, a 22-year-old Tope Olajide, IS NOT, and was at no point in time an employee of Stanbic IBTC Bank PLC.

“The alleged culprit was apprehended around 7:30 am, on Thursday, 27 August 2020, by security operatives after he was exposed by CCTV footage using ATM cards he had allegedly stolen and converted, to make withdrawals from the accounts tied to the stolen ATMs.

“The CCTV footage also showed the alleged culprit pretending to assist customers at ATMs whilst also attempting to fraudulently dispossess the customers of their ATMs.

“He was subsequently arraigned before an Ikeja Magistrate Court on Monday, 14 September, for stealing the debit cards of two customers and using them to unlawfully withdraw the sum of N427,000.

“The Bank would also like to implore members of the public to be security conscious when conducting transactions at ATMs. Customers are advised to report any suspicious actions around them to security operatives who are usually stationed around the Bank’s ATMs, when carrying out transactions at any of our ATM locations.

“As an organisation, we hold dear the values of integrity, and we will continue to prioritise the safety of our customers effectively.”


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