Finance

THIS WEEK: Naira falls as inflation and Eurobond Yield rise


The exchange rate at the official market recorded a marginal depreciation during the week. Naira wasn’t the only item to take a fall. Nigeria’s crude oil production and its external reserve also saw a downward trend.

On the other hand, Nigeria’s inflation rose to 16.82% in April 2022 as a result of the increase in energy and food prices. Eurobond Yield rose to 10.6% driven by the increase in US Interest rates by the US Federal Reserves.

These and many more happened during the week. Here is a compilation of notable happenings in the Nigeria macro-economic space, markets, regulators as well as other world economies.

MACROECONOMY

Exchange rate: Naira closes week at N605/$1 at the black market

  • The exchange rate at the official market recorded a marginal depreciation during the week, falling by 0.005% to close at N419.02/$1 on Friday from N419/$1 recorded on the corresponding day of the previous week.
  • Similarly, at the black market, naira closed at N605/$1 on Friday, 20th May 2022 compared to N591/$1 recorded in the previous week. This is the lowest level on record that the naira has hit against the US dollar.
  • Also, the exchange rate at the peer-to-peer market closed at N604/$1, representing a fall compared to N598.5/$1 recorded as of the previous week. Meanwhile, it is worth noting that the exchange rate had traded as high as N607.32/$1 in the previous week.

Nigeria’s inflation rate jumps to its highest level in 8 months

  • Nigeria’s inflation rose to 16.82% in April 2022, following a similar uptick recorded in the previous month as a result of the increase in energy and food prices.
  • Food inflation rose to 18.37% in the review month, an increase compared to the 17.2% recorded in the preceding month. This rise in the food index was caused by increases in the prices of Bread and cereals, Food products, Potatoes, yam, and other tubers, Wine, Fish, Meat, and Oils.
  • The core inflation rate rose to 14.18% in April 2022 from 13.91% recorded in the previous month. The rise in the core index was attributed to the increase in the prices of Gas, liquid fuel, Cleaning, repair and hire of clothing, Clothing materials, other articles of clothing, and clothing accessories.

Energy crisis pushes Nigeria’s core inflation rate to a 5-year high

  • Nigeria’s core inflation rate soared to a 5-year record high in April 2022 as the index rose by 14.18% year-on-year in the review month from 13.91% recorded in the previous month.
  • According to the NBS, Nigeria’s “all items less farm produce”, otherwise known as Core inflation quickened by 0.26% points month-on-month in April 2022, largely due to significant increases in the prices of gas, liquid fuel, clothing materials, repair and hire of clothing amongst other clothing accessories.
  • Incessant hikes in the price of goods and services have been a recurrent issue in Nigeria, since 2019 when the federal government ordered the closure of land borders, which caused a spiral effect in food prices. This was also exacerbated by the covid-19 pandemic as the cost of most services soared across the world.

Nigeria’s oil production falls to 1.2mbpd in April 2022

  • Nigeria’s crude oil production fell to an average of 1.219 million barrels per day (mbpd) in April 2022, representing a 1.53% decline compared to 1.238mbpd recorded in the previous month.
  • Recall that the Organization of the Petroleum Exporting Countries (OPEC) increased Nigeria’s oil production quota earlier in the month from the 1.735mbpd target approved in May 2022 to a new target of 1.772mbpd for June 2022.
  • This is significantly higher than the current levels at which Nigeria is producing. Meanwhile, the continuous decline in recent times has been attributed to oil theft, pipeline vandalism, and oil bunkering.

External reserve

  • Nigeria’s external reserve continues in its downtrend as it lost $246.25 million during the week, representing a 0.63% decline from $39.04 billion to stand at $38.79 billion as of Thursday, 19th May 2022.
  • The Nigerian reserve level continues to plunge considering the apex bank’s continual intervention in the official I&E window. The levels have remained low despite rising crude oil prices as Nigeria’s production capacity is below the OPEC quota.

Nigerian mega-companies earn higher revenues despite inflation

  • Nigeria’s largest companies operating in the manufacturing, telecommunication, oil and gas, and agricultural sectors earned a whopping sum of N2.33 trillion as revenue in the first quarter of 2022, outpacing their earnings in the corresponding period of 2021 by 33.2%.
  • Most interestingly is the stellar 38.1% growth recorded in their operating profit at N614.25 billion compared to N444.89 billion recorded in the corresponding period of 2021. This shows how the companies have been able to manage their operating expenses despite inflationary headwinds in the Nigerian economy
  • According to the analysis. telco giant, MTN Nigeria recorded the highest revenue of N470.98 billion, largely driven by its voice call revenue, while leading cement manufacturer, Dangote Cement followed with a N413.18 billion top-line revenue.

MARKETS

Equities market

  • The All-Share Index of the Nigerian stock market moderated during the week, declining by 0.22% to stand at 52,979.96 index points. This is the first decline after five consecutive weekly gain recorded by the local bourse.
  • A total turnover of 3.02 billion shares worth N31.78 billion in 29,153 deals was traded this week by investors on the floor of the Exchange, in contrast to a total of 1.82 billion shares valued at N27.19 billion that exchanged hands last week in 36,286 deals.
  • The Financial Services Industry led the activity chart in terms of traded volume with 2.24 billion shares valued at N12.39 billion traded in 10,877 deals; thus contributing 74.3% and 39.01% to the total equity turnover volume and value respectively.

Nigeria’s Eurobond Yield rose to 10.6%

  • Nigeria’s Eurobond Yield with a maturity of 2022 closed trading on Friday at a yield of 10.6% up from 8.9% at the end of April 2022. The bond is expected to mature in 5 years.
  • Bond yields have risen in the last few weeks driven by the increase in US Interest rates by the US Federal Reserves. The US Fed commenced rate hikes in response to the record-high inflation rate experienced in the world’s largest economy. The US Inflation rate stood at 8.3% in April.
  • A hike in US interest rates is targeted at curbing inflation in the world’s largest economy which is achieved when the rate hikes lead to a rise in borrowing costs.
  • The rise in borrowing costs means people borrow less thus reducing the amount of cash in circulation in the US Economy.

REGULATOR

Customs to resume Vehicle Identification Number (VIN) valuation policy

  • The Nigeria Customs Service (NCS) reintroduced the Vehicle Identification Number (VIN) valuation policy for imported automobiles, which had been suspended since March 2022.
  • Comptroller Anthony Udenze, the Comptroller Valuation of NCS headquarters, announced this at a sensitization workshop.
  • NCS further stated that the VIN is here to stay, emphasizing that it cannot be reversed. The policy was suspended to give room for adjustments in the values imputed in the system.

CBN issues guidelines for Open Banking in Nigeria to enhance financial services

  • The Central Bank of Nigeria has issued the regulatory framework for Open Banking in Nigeria in its efforts to enhance data sharing across the banking and payments system to promote innovations and broaden the range of financial products and services available to bank customers
  • Open banking is a banking practice in which third-party financial service providers are given open access to customer banking, transaction and other financial data from banks and non-bank financial institutions via application programming interfaces (APIs).

US Fed to maintain hawkish stance until inflation cools

  • The United States Federal Reserve says it would keep raising interest rates until there is clear evidence inflation is steadily falling despite growth concerns.
  • During the roughly 35-minute interview, the Fed chair, Jerome Powell repeatedly emphasized the need to curb the fastest inflation in decades, calling price stability “the bedrock of the economy” and acknowledging that some pain in achieving this — including a slight rise in the unemployment rate — was a cost worth paying in order to achieve it.

CRYPTOCURRENCIES

Nigeria’s Crypto Heavyweights react to new SEC regulation on digital currencies

  • The Security & Exchange Commission, SEC released its long-awaited Digital Asset regulation that is meant to guide how digital assets such as cryptocurrencies are regulated in the country.
  • The new rules for Digital Assets are part of its effort to regulate digital/virtual assets such as Bitcoins and NFTs. This document titled, “New Rules on Issuance, Offering Platforms, and Custody of Digital Assets” cover regulation on five major items ranging from issuance of digital assets to rules that govern digital asset exchanges in the country.
  • Expectedly, the regulations have drawn several positive and negative remarks from cryptocurrency enthusiasts across the country and outside Nigeria. However, Nairametrics sought the specific opinion of crypto heavyweights whose views are largely respected locally and globally.

10 of the most controversial clauses in the SEC digital asset regulation

The Securities and Exchange Commission (SEC) in Nigeria released its first form of regulation surrounding digital assets last week. The new rules for Digital Assets is part of the Nigerian SEC’s effort to regulate the digital/virtual space which includes the likes of cryptocurrencies like Bitcoin and NFTs. This is a document titled, “New Rules on Issuance, Offering Platforms and Custody of Digital Assets.”

The document covers regulation on five major items ranging from issuance of digital assets to rules that govern digital asset exchanges in the country. This is a follow-through on the promise of the SEC Director-General, Lamido Yuguda, in September 2021 that there will be some form of clarity for the digital asset players.

Although a lot of industry players welcomed the move by the SEC as a step in the right direction, however, many have expressed their unapologetic displeasure surrounding how the country intends to regulate the asset class. Below are some of the most controversial clauses in the new regulation;

Terra co-founder, Do Kwon, summoned by South Korean parliament over Terra debacle

Do Kwon, one of the co-founders and a major decision-maker of the Terra blockchain, has been summoned by the South Korean Conservative Party for a parliamentary hearing, following the fall in the value of both the native token of the blockchain, LUNA and its native programmable stablecoin, UST.

This news comes after Kwon announced another plan to restore the ecosystem. As told by Kwon, Terraform Labs will put forth a new governance proposal on May 18 to fork the Terra blockchain. According to him, the new chain will not be linked to the TerraUSD (UST) stablecoin. He also mentions that the old Terra blockchain will continue to exist with UST and will be called Terra Classic (LUNC). Under Kwon’s plan, if passed, the new LUNA blockchain will go live on May 27.

The announcement of Kwon’s summon was made by a South Korean local news page and it explained that the National Assembly’s Political Affairs Committee today is summoning Terraform Labs co-founder Do Kwon for a parliamentary hearing regarding the issue.

Central African Bank pushes back on Central African Republic’s adoption of Bitcoin

  • After the Central African Republic recognized Bitcoin as legal tender without consulting its regional monetary authority, the Central African bank is cracking down on Bitcoin transactions.
  • The Bank of Central African States which already does not recognize cryptocurrencies is now prohibiting all banks from cooperating with digital currency payment platforms or recognizing them as assets.
  • The Banking Commission of Central Africa (COBAC), which oversees the banking sector in the six-nation Economic and Monetary Community of Central Africa (CEMAC), said the restriction was necessary to maintain financial stability.

US SEC cautions on investing in crypto days after Nigeria’s regulation of digital assets

The US Securities and Exchange Commission has warned the investing public about cryptocurrencies, stating that the digital asset class is not that decentralized. This criticism comes days after the Nigeria SEC decided to regulate digital assets.

The US Securities and Exchange Commission Chairman, Gary Gensler disclosed this during an appearance at a FINRA conference.

He went on to say that investors should not believe they own their cryptocurrency tokens, noting that using a digital wallet on a platform signifies a transfer of ownership to the platform



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