The Central Bank of Nigeria has stated that the naira is expected to depreciate further in January 2021.

This was disclosed in a recent survey carried out by its Statistics Department titled 'December 2020 Business Expectations Survey Report'.

It, however, stated that there might be a steady rise in interest rate from December till the next six months.

The development comes amid rising concerns over the plummeting value of the naira against the dollar in recent times, with its lowest fall occuring on November 30, 2020 when it exchanged for N500/$1. 

According to the CBN, the 11-page survey was done online from December 7 to 11, with a sample size of 1,050 businesses nationwide. 

It noted that a response rate of 91.3 per cent was achieved and that the sample covered the agriculture/services, manufacturing, wholesale/retail trade and construction sectors.

The apex bank also revealed that the respondent firms were made up of small, medium and large corporations, covering both import-oriented and export-oriented businesses.

The report partly read: “Respondent firms expect the naira to depreciate in the current month and next month but appreciate in the next two months and the next six months.

“Inflation level is expected to rise in the next six and 12 months as firms expect the average inflation rate in the next six months and the next 12 months to stand at 13.24 and 14.51 per cent, while borrowing rate is expected to rise in the current month, next month, next two months and the next six months with indices of 19.2, 14.9, 14.7 and 14.3 points.”

The CBN stated that the report showed respondents were unhappy due to poor management of inflation by the government.

It said, “Respondent firms expressed dissatisfaction with the management of inflation by the government, with a negative net satisfaction index -33.5 in December 2020.”

Commenting on findings of the report, a former President, Association of National Accountants of Nigeria, Sam Nzekwe, said the country's over dependence on oil would continue to affect its economy negatively.
He said, “Oil has actually not come up; we are not yet sure of what will happen in January and February. When the advanced countries are using solar, electric power for vehicles, it means that most of the advanced economies that demand our oil may not demand as much because they are shifting emphasis from oil to electricity. The economy may not recover in January and inflation is going high as well.

“There is also the issue of insecurity; there will be food shortage because most farmers are not going to farm again because of banditry and kidnappings, and when there is a food shortage, inflation will keep on rising.”

Similarly, the Director-General, Lagos Chamber of Commerce and Industry, Muda Yusuf, said the macroeconomic fundamentals, the structural factors and the policy choices would determine the exchange rate and inflation outcomes in 2021.

He added, “For instance, a rise in oil price and output could change the narrative regarding the exchange rate and our foreign reserves. Some of these variables are difficult to predict.
“For inflation, the key drivers are the exchange rate, transportation costs, the impact of security on agricultural output, seasonality of harvests and energy costs, among others.

“It is unlikely that much would change in these variables by January.”

On the way forward, Yusuf said, “To fix the problem, we need to fix the factors driving price increases as highlighted.”

On his part, the President, Chartered Insurance Institute of Nigeria, Muftau Oyegunle, expressed doubt that the rising inflation in the country could be addressed due to the various crises ravaging the North, thereby affecting food supply.

Oyegunle, who expressed reservations with CBN's report that the naira would depreciate further, said “fundamentally, one thing that is clear is that Nigerians abroad are the ones sustaining this economy through remittances, even before Nigerians acknowledged the role the money from abroad was playing in the economy.

“Remittances from Nigerians abroad are more than what we earn from oil and this is making the difference in the value of the naira.”

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