Nigeria increases interest rate to 22.75% to defend naira

Nigeria’s central bank held its first policy meeting since July this week and announced a sharp increase in interest rates to tackle rampant inflation and stem the collapse in the country’s currency, the naira (NGN).

Central Bank of Nigeria (CBN) Governor Olayemi Cardoso – who took over the post last September – and his 11 monetary policy committee colleagues raised the benchmark rate by 400 basis points (bps) to 22.75%, exceeding analysts’ forecasts of a smaller hike to 21.25%,

They also tightened other liquidity measures by increasing the cash reserve ratio to 45% from 32.5% and adjusted the bands around which banks can fund and lend money. Going forward, the cost at which lenders borrow will be 100 bps above the monetary policy rate and the return on their deposits will be 700 bps below that benchmark, from 300 bps previously.

The committee decided to act based on “the current inflationary and exchange rate pressures, projected inflation and rising inflation expectations,” Cardoso told reporters at a media briefing in Nigeria’s capital of Abuja. “Members were concerned about the persistent raise in the level of inflation and emphasized the committee’s commitment to reverse the trend as the balance of risks lean to rising inflation,” he said.

The yield on Nigeria’s dollar bonds due 2029 was little changed at 9.61% following the announcement.

The MPC has now lifted the benchmark by an unprecedented 1,025 basis points since its tightening campaign began in May 2022 to curb price pressures that hit an almost three-decade-high of 29.9% last month and aid the naira.

The currency is one of the world’s worst performers and has lost around 70% of its value against the dollar over the period, declining 40% since the start of 2024. The depreciation has largely been due to several devaluations of the NGN since last June as part of efforts to unify Nigeria’s official and unofficial exchange rates in a bid to attract investors and address a dollar shortage.

The governor said the MPC still believed the naira was undervalued and discussed distortions in the currency market but felt “ongoing reforms in the foreign-exchange market will yield the desired outcome in the short to medium term.”

Reforms include the unification of the foreign-exchange market and the promotion of a willing buyer and willing seller market.

President Bola Tinubu eased currency controls and scrapped fuel subsidies soon after he took office in May to spur economic growth. The moves were cheered by international investors but have triggered protests in several of Nigeria’s 36 provinces amid popular fury at the surging cost of living.

Cardoso said the MPC “acknowledged the trade-off between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in an environment of low and stable inflation.”

Nigeria’s economy is forecast to grow 3.38% in 2024, compared with 2.7% last year.

 

US economic growth ended 2023 at 3.2%

US economic growth remained robust in the fourth quarter of 2023, with an annual pace of 3.2% from October through December helped by healthy consumer spending the Commerce Department reported.

The expansion in the nation’s gross domestic product (GDP), reflecting total output of goods and services, eased back from the figure of 4.9% recorded for July through September. The GDP estimate for Q4 was also revised down from the 3.3% pace Commerce initially reported last month.

US growth has nonetheless exceeded 2% for six successive quarters, contrary to forecasts that the series of interest rate hikes introduced by the Federal Reserve from spring 2022 onwards would push the world’s largest economy into a recession. GDP growth for the whole of 2023 moved up to 2.5% against 1.9% for all of 2022.

Consumer spending, which accounts for about 70% of US economic activity, grew at a 3% annual pace from October through December. Spending by state and local governments rose at a 5.4% annual rate over Q4 2023, the fastest pace since 2019. Growing exports also contributed to growth.

Wednesday’s report also showed inflation pressures continuing to ease. The Federal Reserve’s favoured measure of prices — the personal consumption expenditures price index — rose at a 1.8% annual rate in Q4, down from 2.6% in Q3. Stripping out volatile food and energy prices, so-called core inflation was up 2.1%, accelerating slightly from a 2% increase in the third quarter.

The United States is expected to maintain steady growth in 2024. The International Monetary Fund (IMF) expects theUS economy to expand 2.1% this year — more than twice its forecasts for growth in the major advanced economies Japan, Germany, the UK, France and Italy.

The combination of easing inflation, a robust jobd marfket and GDP growth has raised hopes the Federal Reserve can pull off a rare “soft landing’’ by subduing inflation without causing a recession.

“We think growth will slow but will remain positive over coming quarters,’' said Rubeela Farooqi, chief US economist at High Frequency Economics. But the economy is likely to get a lift, she said, from Fed rate cuts later this year. The central bank has signalled that it expects to cut its benchmark rate three times in 2024.

Wednesday’s report was the second of three Commerce Department estimates of fourth-quarter GDP growth. The final revision is issued on 28 March.

 

Deutsche Bank updates framework for sustainable investment 

Deutsche Bank has released a new Sustainable Finance Framework, outlining the methodologies and procedures, including the environmental and social criteria and categories, used by the bank to classify transactions and financial products as “sustainable.”

The new framework is the second to be released by Deutsche Bank, following the initial sustainable finance framework that it launched in July 2020, after the bank had committed earlier that year to a target to grow its sustainable financing and portfolio of environmental, social and governance (ESG) investments under management to over €200 billion (US$216.9 billion) by the end of 2025. The bank has since raised that goal several times, and is now targeting €500 billion of sustainable financing and investment volumes between 2020 and 2025.

Earlier this month, Deutsche Bank revealed that it has reached €279 billion towards its sustainable finance and investment goal as of the end of 2023.

Jörg Eigendorf, Chief Sustainability Officer at Deutsche Bank, highlighted key updates in the new framework that include enhanced eligibility criteria, the incorporation of evolving market practice with guidance from market associations, and heightened transparency, with the framework including a commitment to publish progress on sustainable financing and investments volume with its quarterly and annual financial results, and as part of its annual non-financial report.

Eligibility criteria for sustainable finance and investments under the framework for activities classified as “environmentally sustainable” are based on the six guiding objectives of the European Union (EU) Taxonomy, which include climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems. For socially sustainable activities, the framework outlines its classification along objectives including access to basic infrastructure, access to essential services, affordable housing, SME financing and microfinancing, employment generation, food sustainability and sustainable food systems, and socioeconomic advancement and empowerment.

Deutsche Bank also stated that it received a second party opinion from rating agency and consultancy ISS ESG, which confirmed that the framework “reflects market practices,” and that its content is aligned with the bank’s existing sustainability criteria.

 

Verizon's sixth green bond increases proceeds to US$6 billion

Verizon Communications has completed its latest US$1 billion green bond offering, with proceeds from the issuance to be allocated entirely towards renewable energy investments.

The offering marks the sixth green bond issuance for the US multinational telecoms group, raising a total of US$6 billion since the launch of the company’s inaugural green bond in 2019.

The new green bond offering follows the company’s announcement last week that it had completed the allocation of proceeds from its previous US$1 billion green bond, issued in May 2023, with the full amount also allocated towards renewable energy purchase agreements (REPAs), supporting renewable energy projects across several states, supporting the group’s clean energy targets.

Verizon added that it is on track to exceed its target to source the equivalent of 50% of its total annual electricity consumption with renewable energy by 2025, and that it will continue to identify new renewable energy projects under development to support its goal to reach 100% renewable energy by 2030.

The company noted that it included three minority- and women-owned firms, including Loop Capital Markets, Ramirez & Co., and Siebert Williams Shank as lead underwriters on the deal, alongside Citigroup and Morgan Stanley.

Tony Skiadas, Verizon’s Executive Vice President and Chief Financial Officer said: “Verizon closed the US telecom industry’s first green bond five years ago. Since then, we’ve become one of the leading corporate buyers of renewable energy in the US. I’m proud of the steps that we continue to take toward our environmental and impact goals, as we remain a leader in green finance and diversity, equity and inclusion (DEI) in the capital markets.”

 

International coalition outlines action on plastic pollution

At this week’s World Trade Organisation 13th Ministerial Conference (WTO MC13) in Abu Dhabi, a coalition of World Trade Organisation (WTO) members, under the leadership of ministers from Ecuador, Barbados, Fiji, Morocco, Australia, and China, has taken a “decisive step” towards curbing the problem of plastics pollution. 

The collective action highlights the critical role of trade policy in mitigating the environmental impact of harmful plastics, single-use plastics, and plastic packaging while promoting eco-friendly alternatives like bamboo and algae biomass.

The initiative comprises a ministerial statement proposing a series of actions, accompanied by various measures already being adopted by WTO members. These range from outright bans on single-use plastics to the adoption of eco-design and labelling requirements, alongside financial incentives and tax concessions to foster the use of sustainable and non-plastic substitutes.

Ecuador’s Minister, the Hon. Sonsoles Garcia announced:“This commitment is timely as our environmental minister counterparts convene in Nairobi for the 6th United Nations Environmental Assembly and we look forward to negotiations in Canada towards an international legally binding instrument to end plastic pollution, aiming for a conclusion by the end of 2024.”

 

New Zealand central bank keeps rates on hold

New Zealand's central bank held the cash rate steady at 5.5% and trimmed the forecast peak for rates, catching markets by surprise as policymakers said the risks to the inflation outlook have become more balanced.

The Reserve Bank of New Zealand’s (RBNZ) decision was in line with forecasts but defied some outlying market bets for a rate rise. The market had priced in around a 23% chance of a hike this week. It keeps the central bank more in line with global peers, most of whom have called an end to their aggressive hike cycles.

The RBNZ's rate forecast track and commentary were also slightly more dovish than some traders had anticipated, triggering a selloff in the New Zealand dollar and a rally in bonds.

The bank lowered its forecast cash rate peak to 5.6% from a previous projection of 5.7% - toning down its hawkish stance and effectively reducing the risk of further tightening.

"Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced," the RBNZ statement said.

ASB Bank's chief economist Nick Tuffley commented that the tone of the statement was not as hawkish as could have been, with the risks now seen as more balanced as opposed to the upward skew noted in November’s statement.

 

HSBC and BEA execute first Hong Kong repo trade through digital bonds

HSBC has executed a Hong Kong dollar repo transaction with the Bank of East Asia (BEA), which used Hong Kong government digitally native green bonds as collateral for financing purposes.

The move represents the first repo in Hong Kong involving digital bonds. The transaction involved using Hong Kong dollar (HK$)-denominated bonds as collateral from the largest digital bond issuance globally and is expected to help build liquidity for digital bonds.

“Investing in Hong Kong’s first-ever digitally native bonds and transacting repo trades with the bonds as collateral has been a smooth process,” said Bryan Wong, general manager and head of treasury markets division of BEA.

“This repo transaction marks a significant milestone in building liquidity for digital bonds, while reinforcing our bank’s support for the development of Hong Kong dollar capital markets.”

Using HSBC Orion as the digital assets platform, HSBC helped the Hong Kong Monetary Authority (HKMA) complete a HK$6 billion-equivalent (US$0.77 billion) digitally native green bond issuance for the Hong Kong government across four currencies: HKD, CNH USD and EUR.

According to the bank, this was the largest digital bond issuance globally, alongside being the first multi-currency digital bond issuance. The bonds settled on 7 February.

 

Visa partners with Bahrain’s EazyPay on money movement

Bahrain’s EazyPay, a specialist in Point-of-Sale (POS) and online payment gateway acquiring services, is partnering with Visa to enable Visa Direct, a cutting-edge funds transfer solution for EazyPay’s customer base. The “first-of-its-kind collaboration” in Bahrain marks the initial deployment of Visa Direct Account Funding Transaction (AFT) solution within the nation, empowering consumers with seamless and secure fund transfers to accounts both within Bahrain and across the globe.

Upon integration of Visa Direct capabilities into EazyPay's service offerings, customers will gain the ability to fund their accounts domestically, encompassing multiple currencies, through Visa's expansive network of local banking partners. “This innovative partnership unlocks a world of possibilities for EazyPay customers, with unparalleled ease, speed, and security,” a release added.

Malak Alsaffar, Visa’s Country Manager – Bahrain commented on the partnership, “Our partnership with EazyPay signifies the inaugural implementation of our cross-border account funding solution for customers within Bahrain. This groundbreaking digital payment technology streamlines the transfer process from Visa AFT wallets, rendering it faster, simpler, and more secure than ever before."

 

Dwolla, a US-based account-to-account payment provider, has extended its account-to-account (A2A) offering to include instant account verification, balance checks and fraud mitigation.
Its new ‘Open Banking Services’ empower mid- to enterprise-sized businesses with the functionality they need to offer fast and secure A2A payments through Dwolla’s single application programming interface (API).

Historically, businesses have faced hurdles when it comes to handling A2A payments, often juggling various vendors, APIs, and technical setups, says Dwolla. It aims to streamline this process, allowing enterprises to digitise their payment operations.

Its platform offers instant account verification, balance checks, fraud prevention, and A2A transfers, all through a unified integration.

“Our vision with Dwolla’s Open Banking Services is to empower businesses with a seamless, all-in-one solution for A2A payments,” said Dave Glaser, CEO at Dwolla.

“By consolidating essential A2A payment functionalities under one roof, we aim to simplify the payment landscape for businesses, enabling faster time-to-market and improved operational efficiency.”

 

iGTB Intellect deploys its CTX platform for Société Générale

Intellect Global Transaction Banking (iGTB), the transaction banking arm of Intellect Design Arena Ltd, announced that its Corporate Treasury Exchange (CTX) platform powered by eMACH.ai architecture, has been successfully implemented in France by Société Générale.

CTX provides a comprehensive suite of tools for corporate treasurers to automate real-time liquidity management across multiple accounts, and currencies, held at multiple banks across geographies.

The platform fully automates the movement of cash balances to provide corporate clients with the optimal cash pooling experience.

“Société Générale is proud to offer iGTB’s CTX platform in France, a best-in-class cloud-native cash pooling and real-time liquidity management solution for large corporates,” said Nicolas Cailly, the bank’s Head of Payments and Cash Management. “With liquidity management being an increasing area of focus, Société Générale offers ever more complete and innovative services, and brings further value to its clients.”