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Oil prices sustain losses on looming interest rate hikes

This week, brent crude lost 4.81% to $72.43pb from $76.09pb amid fears of weak demand as the US Fed signals its commitment to future rate hikes should inflation remain above its long-term target of 2%.  Although US inflation slowed to 4% in May, core inflation, the Fed’s closely watched sub-index, remains stubbornly high at 5.3%. Also, the Bank of England also raised its benchmark interest rate by 50bps to 5%p.a in June from 4.50%p.a in May.

Efficient forex market would have an impact on domestic commodity prices

In less than two weeks after the CBN announced the desegmentation of the forex market and the adoption of a “willing buyer-willing seller” exchange rate model, the gap between the parallel and official exchange rates has narrowed sharply. The naira has gone from an overvalued currency (N300) to temporary periods of undervaluation (-N45). This is not surprising when markets are moving from disequilibrium towards equilibrium, as economic variables typically overshoot their fair values, eventually settling at a point that reflects the true demand and supply equilibrium. The movement in the exchange rate will be crucial in determining the level of price inflation. In the coming days, the prices of imported domestic commodities will be largely determined by the exchange rate passthrough effects.

These and other burning economic issues were discussed on the Business Morning programme on Channels TV by FDC’s senior analyst Oluwatomi Mayowa

Click the link to watch the video.

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