Aurelia Butler

ABUJA (Reuters) -Nigeria could save up to 3.9 trillion naira ($5.10 billion) this year alone after reforms to its foreign exchange market and the removal of a petrol subsidy, the World Bank said on Tuesday, but warned of growing inflationary pressures in the short term.Nigerian President Bola Tinubu is embarking on the country’s biggest reforms in decades, including scrapping the popular but expensive petrol subsidy and unifying the country’s multiple exchange rates.World Bank lead economist for Nigeria Alex Sienaert said during a presentation in the capital Abuja that savings from the reforms did not amount to a fiscal windfall. “They stop Nigeria from going over what you might call the fiscal cliff. They really set the stage for a new and an upward trajectory in terms of Nigeria’s development path,” Sienaert said.Nigeria’s economy was expected to grow 3.3% this year and 3.7% next year, he said.The World Bank and International Monetary Fund had for years called on Nigeria to remove the petrol subsidy, which cost $10 billion last year, and free its exchange rate.To deepen foreign exchange reforms, Siernaet said Nigeria should remove restrictions on a list of 43 items, including sugar and flour, that the central bank says cannot be funded from official dollar sales.Tinubu’s monetary policy advisor Wale Edun said the naira, which has weakened to record lows after forex restrictions ended, was expected to stabilise just below 700 to the dollar.Inflation, which hit 22.41% in May, would rise further following the reforms, Siernaet said, adding that some four million more Nigerians may have been driven into poverty in the first five months of this year due to high prices.Labour unions are pressing Tinubu’s government to raise the monthly minimum wage more than sixfold to cushion workers against the impact of the fuel subsidy removal.Nigeria has the second-largest population of poor people in the world and is one of the least developed countries globally, the World Bank says.($1 = 765.00 naira) More

UK chancellor Jeremy Hunt will on Tuesday sign a deal with the EU on regulatory co-operation on financial services, in a fresh sign of improving relations between the two sides.The memorandum of understanding creates a forum for the EU to discuss regulatory issues with the UK relating to financial services and the City of London.The EU already has a similar framework for considering regulatory matters with the US.Hunt’s visit to Brussels is the first by a British chancellor for more than three years and reflects warmer relations between the UK and EU since the signing of the “Windsor framework” in February, which resolved a bitter dispute between the two sides over Northern Ireland’s post-Brexit trading arrangements.Finalising the memorandum of understanding on financial services had been snarled up for two years because of the acrimony that followed the signing of the UK-EU Trade and Cooperation Agreement that set out post-Brexit relations. By itself the new deal will not improve UK financial services companies’ access to the EU market. Clearing is the only area where the EU has granted the UK so-called regulatory “equivalence” in the aftermath of Brexit, albeit on a temporary basis. It means the City’s clearing houses continue to handle euro-denominated derivatives business until the middle of 2025.Hunt said: “The UK and EU’s financial markets are deeply interconnected and building a constructive, voluntary relationship is of mutual benefit.”He will meet Mairead McGuinness, the EU’s financial services commissioner, and will also hold talks on issues including trade, economic security and the bloc’s “green deal” industrial plan.Chris Cummings, chief executive of the Investment Association, the trade body for UK investment industry, said the signing of the memorandum of understanding was an “important milestone”.“Now the [memorandum of understanding] has been confirmed, all focus must now turn to ensuring the joint forum on regulatory co-operation delivers a pragmatic, forward-looking dialogue focused on finding common solutions to common challenges,” he added.

Hunt is also expected to discuss Britain’s attempt to rejoin the EU’s €95bn Horizon science programme, which has become bogged down in a dispute about money.Negotiations over the UK’s “associate membership” of Horizon, outlined as part of the Brexit trade agreement, were initially stalled by the row over Northern Ireland’s trading arrangements.This row is now resolved, but Hunt is demanding a significant discount on Britain’s participation fee in Horizon to take account of two lost years: the EU research programme runs from 2021 to 2027.Additional reporting by Sam Fleming in Brussels and Chris Flood in London More

High inflation helped push an additional 4mn Nigerians into poverty in the first five months of the year, with growth forecast to be too low to lift incomes in Africa’s largest economy, according to World Bank estimates. Annual inflation in Nigeria has been in double digits since 2016 and climbed to an almost two-decade high of 22.4 per cent last month on the back of soaring food and non-alcoholic beverage prices and elevated energy costs, according to the National Bureau of Statistics. Nigeria has one of the highest rates of inflation in Africa.Some 63 per cent of Nigerians, or about 133mn people, were already classed last November as being “multidimensionally poor” by the statistics agency, meaning they lack adequate access to food, healthcare and sanitation, in addition to suffering financial hardships.Alex Sienaert, lead economist for the World Bank in Nigeria, told the Financial Times the slowing pace of inflation in many countries, as monetary policymakers raised rates, had not been visible in Nigeria.“There is an entrenched structural inflation that has taken hold that cannot be explained by some of the global supply chain issues or the energy crisis,” Sienaert said, as the bank launched its latest development update on the country.However, the bank said the policies adopted by the new government of president Bola Tinubu, who took office last month, offered an opportunity to boost growth.Nigeria’s central bank has raised the key interest rate by 700 basis points since May 2022 and mopped up liquidity at commercial lenders with a cash reserve ratio that has been raised by 500bp in the same period as it seeks to tame inflation.The World Bank said those measures were “undermined by monetisation of the budget deficit and other inconsistent policies”. It was referring to the so-called ways and means advances, a scheme where the central bank loaned more than $50bn to the federal government under former president Muhammadu Buhari.Sienaert said other trade and industrial policies — such as directed credit to businesses, the closure of land borders since 2019, use of multiple exchange rates and bans on certain industries accessing foreign exchange from the central bank — had also fuelled inflationary pressures in Nigeria.“All of these things have increased the cost structure in the economy. It’s quite difficult to pinpoint the single silver-bullet factor. But it seems quite clear that the previous mix of domestic policies have been the driver of what is clearly the higher structural rate of inflation in Nigeria than elsewhere in the region on average.”The Washington-based lender maintained its forecast for Nigerian gross domestic product to grow by 3.3 per cent this year, a level which was “not enough to meaningfully lift incomes per person and help to reduce poverty”. The economy was dealt a further blow earlier this year when the central bank’s redesign of the country’s highest denomination currency notes led to a scarcity of cash. Low oil production also contributed to a contraction in the first quarter of the year to 2.4 per cent this year from 3.3 per cent in the same period last year.

Tinubu’s new government has eliminated most of Nigeria’s costly $10bn-a-year petrol subsidies and suspended central bank governor Godwin Emefiele, who artificially propped up the value of the local Naira currency against the dollar. Since Emefiele’s removal earlier this month, the bank has abandoned the currency peg and allowed the Naira to reflect close to its real value against the greenback. The value of the currency has plummeted more than 60 per cent, while petrol and transport costs have risen sharply.Shubham Chaudhuri, the bank’s country director in Nigeria, told the FT that Tinubu’s government was making “bold steps” with the reforms and urged the administration to provide “robust” support — such as targeted cash transfers to cope with rising costs — to stop more Nigerians falling into poverty. More

NEW YORK (Reuters) – Global central banks experienced losses managing their reserves last year amid bond-heavy allocations that took a major hit in 2022 following aggressive monetary policy tightening around the world, according to the latest survey by a think tank group.About 40% of reserve managers surveyed said it will take one to two years to recover losses in 2022, while nearly a quarter believe it will take two to five years.The Official Monetary and Financial Institutions Forum (OMFIF), an organization that tracks central banking and economic policy, surveyed 75 reserve managers overseeing nearly $5 trillion in assets, or about a third of total global reserves currently estimated at $15 trillion. Current reserves are down from a peak of $15.7 trillion seen in late 2021.Currency interventions last year by monetary authorities to prop up their financial units against a resurgent dollar have also contributed to portfolio losses on central bank reserves, OMFIF said in the report.”If you look at it from a 12-month perspective — from March 2022 to March 2023, they (central banks) were down about 4% in terms of total reserves,” Nikhil Sanghani, OMFIF’s head of research told Reuters in an interview.”That’s the effect of intervention and the rest would be market losses, we assume, on fixed-income portfolios,” he added, noting that about 40% of their portfolios are in government bonds.For instance, the U.S. bond market, the largest in the world, had the worst-ever year on record in 2022, bond strategists said, as the Federal Reserve undertook multiple 75 basis-point hikes over the last year to curb stubbornly-high inflation, before decelerating its pace.”The losses on reserves are an unusual situation because of the sharp rise in interest rates,” said Sanghani. “Generally speaking over the last five to 10 years, central bank reserve managers have done pretty well because of the low interest rate environment.”Yet despite losses incurred with bond holdings, reserve managers are planning to increase allocation to this market, along with gold over the next two years, turning risk-averse on concerns about a global slowdown, the OMFIF survey showed.The survey also showed that 32% of reserve managers plan to increase allocation to bonds over the next two years, compared with 5% in 2021, and 10% in 2022.The fear of stagflation, a scenario characterized by high inflation, as well as sluggish growth and unemployment, is driving that fear to safety, OMFIF said. About 38% of reserve managers expect a global recession over the next 12 months. More

Central banks around the globe have jacked up interest rates to tame levels of inflation not seen for at least 30 years and while tighter policy is beginning to bite and growth is slowing, their job is not yet considered done.In Sweden, inflation slowed in May, but underlying price pressures remained strong, and economists in the poll were unanimous in seeing a hike to 3.75% from the current 3.50% when the Riksbank announces its decision on Thursday.”A weak crown, high but falling inflation and concerns about financial stability create a complicated situation for the Riksbank ahead of the interest rate announcement,” SEB said in a note. “We see a final hike of 25 points at the meeting in June as most likely, combined with a decision on a faster sale of the Riksbank’s bond holdings.”At its latest meeting in April, the Riksbank tightened policy by 50 basis points and said it would likely hike by a further quarter percentage point at one of the meetings in June or September.Opinions about what the Riksbank will do after next week diverge. The median forecast in the poll is for the policy rate to top out at 3.75%, but a higher outcome is possible and some analysts see the policy rate reaching 4.25% at the end of the year. The Riksbank faces a dilemma. Headline inflation was 7.6% in May, way above the Riksbank’s 2% target, and would warrant more interest hikes. However, Swedish households are some of the most indebted in Europe and economists have warned that too steep rate hikes risk ruining the economy. The weak Swedish crown is also making the Riksbank’s inflation-fighting job more difficult.The European Central Bank hiked its policy rate to 3.5% in June, the highest level for 22 years, and indicated it would keep raising rates, adding pressure to the Riksbank to at least match that level. The median forecast in the poll showed the Riksbank starting to cut rates at the start of next year. More