Oil Settles Stabilizes Amid Concerns Over Demand Counterbalance Mid-East Tensions

Taiwo Adekeye, FMVA

February 13, 2024

Oil futures was a bit changed on Monday as concerns about interest rates and global demand caused the market to experience a marginal change after prices jumped about 6% last week on worries that the Middle East tensions could cause supply problems. However, the International Energy Agency (IEA), which represents industrialized countries, projected that oil demand will be at its peak by 2030, undercutting the rationale for investment. Brent futures fell by 0.2% to settle at $82.00 a barrel while U.S. West Texas Intermediate (WTI) crude was up by 0.1% settling at $76.92.

South Africa: The South African rand strengthens, overall outlook remains pessimistic

The Rand was marginally stronger on Monday but remained close to the 19.0 mark, with no positive domestic news to boost it. The rand is undervalued due to various negative factors, such as the uninspiring presidential address, a weak growth outlook, and political uncertainty. The Rand traded at 18.9850 against the USD, about 0.3% stronger than its previous close while the dollar index was last up about 0.23% at 104.220. South Africa’s benchmark 2030 government bond was weaker, with the yield up 9 basis points to 10.045%.

Zimbabwe: Zimbabwe to tie its exchange rate to tangible assets and establish a currency board.

Zimbabwe is implementing new measures to stabilize its local currency, including pegging the exchange rate to hard assets like gold and establishing a currency board. The Zimbabwean dollar has fallen about 40% since the beginning of this year. This has caused inflation to accelerate beyond measure in an economy still battered by memories of hyperinflation under longtime leader Robert Mugabe. The government relaunched a local currency in 2019 after a decade of dollarization, but it rapidly lost value and authorities reauthorized the use of foreign currencies in domestic transactions soon after.

Nigeria: IMF advises CBN to generate N2 trillion via OMO bills in the next 1 year

The International Monetary Fund (IMF) has advised the Central Bank of Nigeria to battle inflation by mopping up excess liquidity in the economy by raising OMO bill of up to N2 trillion in the next 12 months.  The suggestion from IMF comes on the heels of the CBN recording an oversubscription of N2.3 trillion for its N1 trillion treasury bills offer. The 364days treasury bills has an oversubscription of N1.8 trillion with investors bidding between 13% and 29.9% interest rates. Furthermore, the currency in circulation rose by N890 billion to N3.65 trillion as of December 2023 representing a 32% rise. The CBN had attributed the excess cash in circulation to be one of the factors fueling the increased inflation.

India: India retail inflation eases to 3-month low of 5.10%

India’s retail inflation rate hit a three-month low of 5.10% in January as prices of some food items grew marginally, although the central bank is expected to halt cutting of rates as inflation remains above its target zone. Food inflation, which accounts for nearly half of the overall consumer price basket surged by 8.30% in January, compared with a 9.53% rise in December. The apex bank which is the Reserve Bank of India (RBI) left interest rates unchanged, signaling that cuts is not happening soon as it focuses on getting inflation to 4% on a sustainable basis.

Russia: Russia to maintain interest rates at 16%Russia to hold interest rates at 16% on Friday after 850 basis points of rate hikes in five meetings since July. Widespread labor shortages, local currency weakness, strong credit growth and high government spending all contributed to price pressure in 2023, when annual inflation hit 7.4%, compared to 11.9% reading in 2022. However, Central Bank Governor Elvira Nabiullina gave a dovish signal in late January, stating that the bank sees room to lower its key rate, most likely in the second half of this year.