Raising Interest Rates to Bring Down Inflation – Business Post Nigeria

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By Ijezie Ebuka
The day started in Asia with the Indonesian and Philippines Central Banks raising interest rates by 50 basis points. The Norway Central Bank followed by also raising its rate by 50 basis points from 1.75% to 2.25% and said the rate would also be most likely increased again in November as the inflation rate is above its 2% target.
The Bank of England then increased the interest rate by 50 basis points as the UK’s inflation rate in August was 9.9%, way ahead of the bank’s 2% target. The hike was the seventh consecutive increase and the highest since 2008.
The last country in Europe with a negative policy rate, Switzerland also increased the interest rate by 75 basis points, just as the Federal Reserve did for the third consecutive time on Wednesday, September 22.
The Brazilian Central Bank, on the other hand, kept its benchmark unchanged at 13.75% after 12 straight hikes. Another Central bank that kept the rate unchanged is the Bank of Japan. It stuck with a low-interest rate despite a consumer inflation rate of 2.8% in August and said it would keep it that way in the near future to encourage economic recovery. It also confirmed that it would intervene in the foreign exchange market to defend against the fall of the Yen.
The shock of the day was Turkey cutting its interest rate by 100 basis points from 13 to 12% despite an 80% inflation rate in August.
Economists at CitiGroup issued a report on Wednesday that, “The rhetoric and action of major central banks are demonstrating greater resolve to fighting inflation, increasingly willing to sacrifice economic growth to achieve this.”
Persistent inflation around the world means central banks around the world may continue to increase interest rates in the near future.
Next week, the Central Bank of Nigeria (CBN) will meet to decide which way to go. At its last meeting, the benchmark rate was raised from 13% to 14%.
It is always believed that when interest rates are high, the cost of borrowing goes up, forcing consumers to reduce their spending, bringing about a decline in the demand for goods, and resulting in a fall in prices. When the prices of goods go down, inflation eases.
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By Aduragbemi Omiyale
**As FG, States, Local Councils Share N673.1bn
The money shared by the federal, state and local governments in September 2022 as federal allocation went down to N673.1 billion from the N954.1 billion received in August 2022.
The primary reason for the decline in the revenue generated in the month was a shortfall in Companies’ Income Tax (CIT), Petroleum Profit Tax (PPT), and oil/gas royalties.
These components of the earnings outweighed the significant increases in the revenue generated from Value Added Tax (VAT), import and excise duties in the month under review.
Some hours ago, the Federation Account Allocation Committee (FAAC) held a meeting with Commissioners of Finance of the 36 state governments and others to share the revenue generated by the country last month.
The allocated funds are used mainly by various federal, state and local governments to pay the salaries of workers under their payrolls.
A communiqué issued at the close of the gathering on Friday disclosed that the disbursed amount comprised gross statutory revenue of N437.871 billion, Value Added Tax (VAT) of N215.266 billion, and augmentation of non-oil excess revenue of N20.000 billion.
Business Post learned that from the gross revenue of N437.871 billion, the federal government got N259.641 billion, the states received N222.949 billion, the local government councils got N164.247 billion, while the oil producing states received N0.000 billion as derivation as 13 per cent of mineral revenue.
Also, from the N215.266 billion shared as VAT revenue, the central government got N32.290 billion, the states received N107.633 billion, and local councils got N75.343 billion.
From the N20.000 billion augmentation of non-oil excess revenue now converted to distributable revenue, the national government received N10.536 billion, the states got N5.344 billion, and the local councils received N4.120 billion.
In the communiqué, it was stated that the balance in the Excess Crude Account (ECA) as of September 23, 2022, stood at $470,599.54.
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By Adedapo Adesanya
Oil dipped by 5 per cent on Friday on the back of heightened concerns about slowing economic growth and recessions looming, with the Brent futures falling by $4.31 or 4.8 per cent to $86.15 a barrel, and the US West Texas Intermediate (WTI) crude futures declining by $4.75 or 5.7 per cent to $78.74 per barrel.
On a week-on-week basis, while the Brent depreciated by about 6 per cent, the WTI went down by about 7 per cent. It was the fourth straight week of declines for both benchmarks, the first time since last December.
Oil prices jumped earlier in the week when President Vladimir Putin ordered a “partial mobilization” of 300,000 men to send to fight in Ukraine in the first mass draft in Russia since World War 2.
Mr Putin also hinted at the possibility of using “any means” to defend Russia, which analysts interpreted as a threat he could use nuclear weapons.
Yet, oil prices fell later in the week on the strong dollar and fears of a recession intensified with major central banks hiking interest rates again to fight inflation. This week, the Fed raised the key rate by another 75 basis points for a third consecutive time. On the following day, the Bank of England raised rates by 50 basis points to 2.25 per cent, the highest rate since the start of the 2008 financial crisis.
The US Dollar was on track for its highest close against a basket of other currencies since May 2002. A strong greenback reduces demand for oil by making the fuel more expensive for buyers using other currencies.
Investors feared the US Federal Reserve’s hawkish policy actions to quell inflation could trigger a recession and dent corporate earnings.
The euro zone’s downturn in business activity deepened in September, a survey showed, suggesting a recession looms as consumers rein in spending and as governments urge energy conservation following Russia’s moves to cut off European supply.
On the supply side, efforts to revive the 2015 Iran nuclear deal have stalled as the Middle East insists on the closure of the UN nuclear watchdog’s investigations, a senior US State Department official said, easing expectations of a resurgence of Iranian crude oil exports.
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By Aduragbemi Omiyale
Nigeria’s President, Mr Muhammadu Buhari, has urged investors to consider putting their money in the country as his administration has put in place measures to safeguard their investments.
Speaking at the Nigeria International Economic Partnership Forum held on the margins of the 77th United Nations General Assembly in New York, Mr Buhari noted that investments in improving security were yielding good dividends, lauding the Nigeria military for making significant progress in the fight against insecurity and building the momentum in reducing challenges to its barest minimum.
“We will continue to give all necessary support to our security outfits to ensure that they are able to tackle the challenge headlong,” he said, stressing that “the advantages and disadvantages of investing in Nigeria far outweigh the challenges.”
The President, who was represented at the opening session by his Chief of Staff, Mr Ibrahim Gambari, however, lamented the low inflows of capital into the country, primarily through Foreign Direct Investments (FDIs), despite “the Nigerian economy ripe for increased investment.”
According to him, this is “hindering the financing of much-needed infrastructure and natural resource access projects.” But he assured that “our administration is already working on innovative ways to restore these flows.”
He said despite the global crisis fuelled by the Ukraine-Russian war, the lingering COVID-19 pandemic and insurgency in some parts of the country, Nigeria was on course to take its rightful place in the global economy, attributing this to the implementation of reforms aimed at attracting foreign investments and sustained improvement in governance.
He noted that the quarterly gross domestic product (GDP) growth in Q1 2022 was driven mainly by the non-oil sector, crediting the revenue source diversification agenda of the government.
“The agricultural sector, our most important, has remained resilient in spite of security concerns, low irrigation, limited inputs, and legacy infrastructure challenges, with strong food demand bolstering growth.
“Growth in manufacturing reflected stronger household and business consumption because of the reopening of economic activities and improvement in supply chains.
“The present growth in our service sector is promising. Further privatisation, foreign investment, globalization and competition will stimulate growth and competition in the service sector and the economy.
“On the domestic front, the federal government is taking some bold, decisive and urgent action to address revenue underperformance and improve our operations to make investments in Nigeria very attractive,” he said.
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