Business
South Africa Central Bank Raises Interest Rate to 5.5%
PRETORIA — South Africa’s central bank on Wednesday raised its key interest rate, aiming to halt a rush out of its bonds and currency spurred on by turmoil in the world’s emerging markets.
South African Reserve Bank Governor Gill Marcus said the bank’s monetary policy committee voted to raise the so-called repo rate by 0.5 percentage point to 5.5%. It was an unexpected move, and South Africa’s first rate change since 0.5-point cut 18 months ago. Most economists expected the bank to keep rates at that level for now.
But in the past week, the ground has shifted in the global economy.
Investors have hammered South Africa and other emerging markets with wide current-account deficits and domestic political problems.
Facing similar pressures, India’s central bank raised its key rate by 0.25 percentage points on Tuesday to 8%. In an extraordinary meeting held at midnight, Turkey’s central bank jacked up its overnight lending rate to 12% from 7.75%, and its repo rate to 10% from 4.5%.
As the U.S. Federal Reserve dials back its expansive bond-buying program, traders expect Treasury yields to rise, giving investors less incentive to shoulder the increased political risks that come with higher yields on emerging-market assets.
South Africa has been among the hardest hit. The currency, the rand, fell more than 5% against the U.S. dollar this month—on top of a 24% decline in 2013—and foreign investors have pulled $1.7 billion out of South African stocks and bonds.
Ms. Marcus said a drastic drop in the value of South Africa’s rand currency has raised inflationary pressures that need to be addressed. “The process of normalization has begun, and the spillovers have implications for our own monetary policy,” she told reporters.
Other factors argued against a rate increase.
Even as the rand has tumbled, South Africa’s annual inflation rate has remained well below the bank’s 6% target ceiling, at 5.4% in December. The trade balance in Africa’s biggest economy swung to an unexpected surplus in November, from a steep deficit a month earlier.
And South Africa’s economic growth remains sluggish. The country’s gross domestic product expanded less than 2% last year, and some economists fear that an increase in borrowing costs will drag on growth even more.
Meanwhile, strikes that have plagued the critical mining and manufacturing sectors for 18 months have flared again this year in the platinum industry, a vital engine for exports.
“The economy is very weak. A rate hike that might damage growth prospects could send the wrong signal to investors,” said Johann Els, an economist at Old Mutual Investment Group in Cape Town.
Malcom Charles, a portfolio manager at Investec Asset Management in Cape Town, said it was worth risking a slight dent to economic growth to keep South Africa’s bond yields and currency at palatable levels.
“It’s tough medicine, but taking no medicine would have been a lot more dangerous,” he said.
The rand initially strengthened on news of the rate cut, then quickly fell to 11.22 to the dollar, just shy of the five-year low the currency hit earlier in the week.
The Fed is expected to trim its monthly bond purchases by $10 billion to $65 billion later Wednesday, potentially adding pressure on South Africa and its vulnerable emerging-market peers.
Ms. Marcus said that as developed economies strengthen and the Fed continues to pull back its stimulus efforts, emerging markets need to be proactive in shoring up their own economies.
“This is in our view a new leg of the same crisis that has been going on for some time. It’s now focused on emerging markets,” Ms. Marcus said. “You have a market that is very sensitive to what is going on and we are trying to create as much certainty as possible, in a thoughtful manner.”
– WALLSTREET JOURNAL
The World Bank has uncovered $32 million in unaccounted funds linked to a water infrastructure project in Nigeria, raising concerns about financial mismanagement in donor-funded initiatives.
The discovery was highlighted in the bank’s recently published FY2024 Sanctions System Annual Report, which revealed significant discrepancies in the project’s financial records.
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The missing funds were earmarked to bolster Nigeria’s water infrastructure, but irregularities in accounting prompted an investigation by the World Bank’s Integrity Vice Presidency (INT).
“INT followed up on risks identified regarding a project in Nigeria’s water sector and flagged to operations the risk, which was associated with $32 million of unaccounted funds,” the report noted.
In response, the World Bank engaged with key stakeholders, including the project’s task team leader, operations manager, and financial management specialist, to recover the funds and safeguard the project’s integrity.
As part of the resolution, the Central Bank of Nigeria has been requested to reimburse $22 million. Meanwhile, $6 million remains in the project’s account to cover ongoing operational costs.
The findings underscore the importance of transparency and robust financial oversight in large-scale infrastructure projects, particularly those funded by international institutions.
The Central Bank of Nigeria (CBN) has issued a stern warning to Deposit Money Banks (DMBs) over the illegal sale of mint Naira notes to currency hawkers.
The apex bank, in a circular signed by the Acting Director of Currency Operations, Mr. Solaja Olayemi, on Friday, emphasized that erring banks would face stringent penalties.
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As part of its efforts to curb the abuse of the national currency, the CBN announced plans to conduct nationwide checks to seize mint notes sold by hawkers.
Banks found to have released such notes will be required to pay a fine of 10% of the value of the affected cash withdrawn from the CBN on the date in question.
Subsequent violations will attract an additional penalty incrementally increased by 5%.
The CBN also reiterated its commitment to enforcing the Clean Notes Policy, warning that banks involved in hoarding, diversion, or any actions that disrupt efficient cash distribution would face appropriate sanctions.
With the festive season fast approaching, the apex bank urged DMBs to enhance internal controls to ensure transparent cash distribution.
It highlighted the need for proper utilization of Automated Teller Machines (ATMs) to ensure easy access to new notes by the public.
Furthermore, the CBN disclosed plans to intensify its mystery shopping and spot checks, working closely with law enforcement agencies to clamp down on any practices that undermine the integrity of the Naira.
Nigeria’s inflation rate surged to 33.88% in October 2024, up from 32.7% in September, according to the latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) on Friday.
The month-on-month increase of 1.18 percentage points marks yet another strain on the nation’s economy, with transportation and food costs cited as the main drivers of inflation.
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Steep Year-on-Year Increase
Compared to October 2023, when the inflation rate stood at 27.33%, the October 2024 figure reflects a significant rise of 6.55 percentage points. This sustained upward trend highlights the worsening cost-of-living crisis for Nigerians.
Month-on-Month Breakdown
Inflation on a month-on-month basis also showed an uptick, rising to 2.64% in October 2024 from 2.52% in September. The faster rate of price increases further underscores the growing economic pressure on households.
Food Inflation Soars to 39.16%
Food inflation, a major component of the headline rate, reached 39.16% in October 2024, up from 31.52% in the same month last year.
The increase was driven by higher prices of staple items, including: Cereals and Tubers: Guinea Corn, Rice, Maize Grains, Yam, Water Yam, and Coco Yam. Oils and Fats: Palm Oil and Vegetable Oil. Beverages: Milo, Lipton, and Bourvita.
On a month-on-month basis, food inflation rose by 0.30 percentage points to 2.94% in October, up from 2.64% in September.
Price hikes in Palm Oil, Vegetable Oil, Fish, Meat, and Bread categories were major contributors.
Annual Food Inflation Hits 38.12%
The average annual food inflation rate over the past 12 months climbed to 38.12%, a sharp increase of 11.79 percentage points from the 26.33% recorded in October 2023.
The consistent rise in inflation, particularly food and transportation costs, continues to erode the purchasing power of Nigerians.
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