The $/₦ appears stable sub 1,500 and the climbing interest rate environment appears to have slowed amidst tight money market liquidity and very high inflation. Efforts to curb inflation have been consistent, but do not seem to be yielding desired results as fast as expected perhaps due to the peculiar brand of inflation prevalent in Nigeria.
Recent developments including the receipt of a $925 million payout tranche from Afrexim Bank and the commitment of a $2.25 billion facility from the World Bank will surely go a long way to consolidate stabilisation efforts in the coming months. But the fundamental question remains, how will inflation ultimately be curbed, and at what cost?
Last Thursday, the CBN conducted the second NTBs auction for the month of June. The amount offered was over ₦44 billion across all tenors and a total of ₦55 billion was allotted (approximately 80% less than the allotment at the preceding auction). The stop rates were 16.3000% for 91 days (reduced by 121bps), 17.4400% for 182 days (a 34bps decline), and 20.5000% for 364 days (amounting to an 82bps reduction).
The announcement of a substantial $2.25 billion loan from the World Bank may have introduced a new dynamic as the World Bank has advised the Central Bank of Nigeria (CBN) against further interest rate hikes. In its reasoning, the World Bank has noted that increasing interest rates further will dampen economic growth, make borrowing more expensive, and in turn, stifle investments and spending, ultimately slowing down economic recovery efforts.
In the views of many market analysts, the fresh influx of funds from the World Bank presents an opportunity for the Nigerian government to address fiscal deficits and implement reforms without resorting to higher interest rates. Maintaining the current interest rate threshold could foster a more stable financial environment, attracting both domestic and foreign investments.
In May 2024, Nigeria’s average crude oil production fell to 1.25 million barrels per day (bpd), down from 1.28 million bpd in April 2024, marking a decline of 30,000 bpd. The current level of production is the second lowest of the year.
According to the May 2024 edition of the OPEC Monthly Oil Market Report (MOMR), the total crude oil supply by OPEC+ members was at 40.9 million bpd, based on secondary sources. Despite the decrease, Nigeria remained Africa’s largest crude oil producer, followed by Angola and Libya.
Interestingly, secondary sources indicated that Nigeria’s crude oil production actually increased by 74,000 barrels, from 1.34 million bpd to 1.41 million bpd, during the month. A position consistent with a Reuters survey, which reported a rise of about 50,000 bpd in Nigeria’s May 2024 crude oil production. Global demand for crude oil remained steady at 2.2 million bpd, the same as the previous month, with a projected daily demand of 104.5 million bpd in 2024.
In May 2024, the average crude oil price, according to the OPEC Reference Basket (ORB) fell by $5.53, or 6.2%, to $83.59 per barrel month-on-month. The reduction in Nigeria’s crude oil production underscores the inconsistent performance of the oil sector, which is critical as the country aims to boost its daily production levels. The production level of 1.25 million bpd in May 2024 marks the fifth consecutive month that Nigeria has failed to meet its OPEC production quota or its 2024 budget benchmark, impacting its projected revenue.
According to Reuters, analysts at Goldman Sachs predict Brent crude will rise to $86 per barrel in the third quarter of 2024. They attribute this forecast to strong summer transport demand, which is expected to create a Q3 2024 deficit of 1.3 million barrels per day in the oil market.
This price surge comes after a three-week regression in oil prices, driven by OPEC+’s plan to unwind some production reductions starting in October 2024, potentially leading to an increase in supply. Despite these anticipated cuts, oil inventories have grown with recent rises in US crude and gasoline stocks.
In the last 36 hours, nearly $483 million has been liquidated across several cryptocurrency exchanges, with nearly $425 million being long positions. What is going on with Bitcoin (BTC) and its investors this month?
Fear, Uncertainty and Doubt (FUD) have crept into the market in recent times from issues surrounding the recent attack on Israel, crude oil prices, and carbon emissions, causing speculators and large holders (whales) to exit their positions in their numbers. BTC stands around $64,000 and is not likely to see a bounce unless some good news spurs upward momentum like we saw when Bitcoin ETFs were approved. The invisible hand is clearly at work here, doing what it does best.
Just before the Ukraine and Russia war started, BTC saw a major dip a week ahead. The same thing happened the week before Hamas attacked Israel in the last quarter of 2023. As tensions escalate in regions where there is war and turmoil, BTC sees a sharp dip every time. Could there be a correlation between weapons and ammunition buying and wars?
Market sentiment plays a significant role in the price movements of Bitcoin. Negative news, regulatory developments, or concerns about the overall market can lead to a decrease in demand and a drop in price.
Regulatory developments, changes or crackdowns in major markets can impact the price of Bitcoin. News of increased regulation or restrictions on the use of cryptocurrencies can lead to a decline in prices as it affects investor confidence.
The cryptocurrency market, including Bitcoin, can be subject to manipulation by large traders or groups. Coordinated selling or market manipulation tactics can lead to sudden price drops.
Technical factors such as trading volume, market liquidity, and price patterns can also influence the price of Bitcoin. For example, a large sell-off or a breach of key support levels can trigger further selling and lead to a price drop.
Macroeconomic factors and economic events such as inflation, interest rate changes, or geopolitical tensions can impact the price of Bitcoin. Uncertainty in the global economy can lead investors to move away from riskier assets like cryptocurrencies, causing a drop in prices.
After a period of significant price appreciation, some investors may decide to take profits by selling their Bitcoin holdings. This selling pressure can contribute to a decline in the price of Bitcoin which is most likely the case in this instance as we saw the price soar by nearly $10,000 in the last 2 months.
It’s important to note that the cryptocurrency market is highly volatile, and price movements can be influenced by a wide range of factors. Investors are encouraged to conduct thorough research and exercise caution when investing in cryptocurrencies.
Following the public holidays on Monday and Tuesday this week, the FGN Bond auction scheduled for June 17th, 2024, has been moved forward by a week to be held on June 24th and for settlement on June 26th, 2024. While many analysts expect interest rates to adjust downward in tandem with the NTB result last week, we think the result can be largely attributed to the very low amount offered and the DMO’s disposition not to sell so much. Moreso, the major driving force supporting high interest rates at this time beyond MPR hikes is the liquidity drought across the interbank money market (where the Overnight rate closing Friday was 26.25%)
It is clear from recent developments that refraining from further interest rate hikes is a pragmatic approach, aligning with the broader goals of economic sustainability and growth. Interest rates may not trend much higher from hereon, but their decline may not be likely anytime soon.
