CBN: Naira to fall further in January

CBN: Naira to fall further in January

Nigeria Naira

Just five days before the end of 2020, the Central Bank of Nigeria has revealed that a survey by its Department of Statistics revealed that the naira is expected to depreciate further in January 2021.

The report, titled ‘December 2020 Business Expectations Survey Report,’ added that there could also be a steady increase in interest rate from December through the next six months.

The naira witnessed a sharp decline in recent weeks, reaching its lowest level on November 30, 2020, when it was exchanged for N500 / $ 1. Since then, the dollar has oscillated between N460 and N470. However, until Friday, a dollar was exchanged for 465 in the parallel market.

Additionally, the Nigerian economy slid into its second recession in five years on November 21 as the economy contracted again in the third quarter. The recession is said to be the worst in 36 years, according to data obtained from the World Bank. The Federal Government and some economists had been optimistic that the country would emerge from recession in 2021.

Meanwhile, in the 11-page survey report, CBN said it conducted the survey online from December 7-11, with a sample size of 1,050 companies nationwide. It noted that a response rate of 91.3 percent was achieved and that the sample covered the agriculture / services, manufacturing, wholesale / retail and construction sectors.

He added that the companies surveyed were made up of small, medium and large corporations that spanned both import and export oriented businesses.

The report said in part: “The surveyed companies expect the naira to depreciate in the current month and the next, but it will appreciate in the next two months and the next six months.

“The level of inflation is expected to increase in the next six and 12 months, as companies expect the average inflation rate in the next six months and the next 12 months to be at 13.24 and 14.51 percent, while expects the debt rate to increase in the month, next month, the next two months and the next six months with indices of 19.2, 14.9, 14.7 and 14.3 points ”.

In the survey, surveyed companies expressed pessimism about the macroeconomy, while their outlook on business volume, average capacity utilization, total order volume, and financial condition (working capital) were positive.

The CBN stated that surveyed companies identified insufficient energy supply, unfavorable economic climate, competition, high interest rates, unclear economic laws, financial problems, unfavorable political climate, access to credit, insufficient demand, lack of equipment, lack of inputs. of materials and labor. issues as major factors limiting business activities in December 2020.

In a separate development, Apex Bank in a 133rd statement from the Monetary Policy Committee meeting held on November 23 and 24 and signed by the Governor of the Central Bank of Nigeria, Godwin Emefiele, said that aggregate domestic credit grew by a 7.61 percent. in October 2020, compared to 7.35% the previous month.

This, he said, was as a result of the bank’s policy on the loan-to-deposit ratio, supported by its interventions in the various sectors of the economy, adding that total bank credit grew in the banking industry by 290.13 billion naira. between the end of August. and mid-November.

The statement added: “Total gross credit of the banking industry stood at N19.54tn as of November 13, 2020, compared to N19.33tn at the end of August 2020, an increase of N290.13tn.

“Compared to N15.56tn at the beginning of the LDR policy in May 2019, total gross credit increased by N3.97tn, these loans were mainly made to manufacturing (N738bn), general trade (N874bn), agriculture and forestry ( N301bn), construction (N291bn) and ICT (N231bn), just to mention a few. “

The release further noted that the MPC observed the gradual improvement in the manufacturing and non-manufacturing purchasing manager indices, which rose to 50.2 and 47.6 index points, respectively, in November 2020, compared to 49, 4 and 46.8 index points in October 2020.

He added: “This development indicates an increase in economic activities, driven by the growth of new orders, a better delivery time of supplies, an increase in production levels and new export orders. The employment level index component of the manufacturing and non-manufacturing PMIs also improved in November 2020 to 47.3 index points and 46.7 index points, respectively, compared to 46.0 index points and 44, 2 index points in October 2020.

“The committee, however, noted the likely downside risk to growth from the recent unrest in the country, warning that this may negatively affect the economic recovery in the short term.”

Meanwhile, on the opinion of respondents on controlling inflation, the CBN report said that respondents denounced the mismanagement of inflation by the government.

He said: “The surveyed companies expressed their dissatisfaction with the government’s management of inflation, with a negative net satisfaction index -33.5 in December 2020.”

Regarding the business outlook, the report showed that at -15.2 index points, the general macroeconomic confidence index was pessimistic in December 2020, while respondents were optimistic in their outlook for January 2020. 2021 with a confidence index of 29.4.

Respondents also expressed optimism on the overall business outlook for February and June 2021, as shown by higher confidence in the economy at 39.2 and 55.2 index points respectively.

He added: “The pessimism about the macroeconomy in the current month was driven by the opinion of the respondents from the sectors of agriculture / services (-10.4 points), wholesale / retail trade (-1.7), construction (- 1.6 points) and manufacturing sectors. (-1.6 points).

“The main drivers of optimism for next month were agriculture / services (16.8 points) and the manufacturing sectors (10.3 points). A more detailed analysis revealed that companies that were neither import nor export oriented (-9.5 points), both import and export (-3.4 points), importers (-2.0 points) and exporters (-0.2 points), boosted the negative business outlook. for the month under review. “

In terms of employment and expansion plans, the report said that the opinion of the surveyed companies on the volume of business activities indicates a favorable business outlook for January and February 2021, with indices of 47.7 and 55.0 respectively.

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He added: “Companies also expect to hire in January and February 2021, as the outlook was positive at 18.5 and 21.5 index points, respectively.

“The breakdown by sector showed that the agricultural / services sector with (20.5 points) has the highest employment outlook in the next month, followed by the construction sector with an index of 17.9 points, the manufacturing sector (16.7 points) and wholesale / retail trade (13.4 points).

Respondents were also optimistic about the volume of business activities and the employment outlook index in the next six months, as all indexes were positive. An analysis of companies with expansion plans in January showed that the agricultural / services sector and the construction sector are most willing to expand with 52.9 index points each.

“The manufacturing and wholesale / retail sectors had a ratio of 46.6 and 41.2 respectively”

Speaking about the implications of the report, a former president of the Nigerian Association of National Accountants, Dr. Sam Nzekwe, explained that all plans for the recovery of the economy were currently based on oil and that volatility in the price of oil Oil would continue to affect the economy. economy because the country was not producing.

For the naira and inflation to moderate, he said, the economy must start producing and security must improve.

He said: “Oil hasn’t really gone up; we are still not sure what will happen in January and February. When advanced countries are using solar and electric power for vehicles, it means that most advanced economies that demand our oil may not demand as much because they are shifting the emphasis from oil to electricity. The economy may not recover in January and inflation is also on the rise.

“There is also the issue of insecurity; there will be food shortages because most farmers will not grow crops again due to banditry and kidnapping, and when there is food shortage, inflation will continue to rise. “

He added that it was important to create infrastructure and an enabling environment for productive sectors to prosper.

Also, the Director General of the Lagos Chamber of Commerce and Industry, Dr. Muda Yusuf, said that macroeconomic fundamentals, structural factors and policy options would determine the exchange rate and inflation results in 2021.

He added: “For example, an increase in the price and production of oil could change the narrative regarding the exchange rate and our foreign reserves. Some of these variables are difficult to predict.

“For inflation, the key factors are the exchange rate, transportation costs, the impact of security on agricultural production, the seasonality of crops, and energy costs, among others.

“It is unlikely that much will change in these variables for January.”

Speaking about the solution, Yusuf said: “To fix the problem, we must correct the factors driving the price increases, as highlighted.”

The president of the Chartered Insurance Institute of Nigeria, Muftau Oyegunle, said that it was unlikely that much could be done with the inflation rate because the crisis in the north had drastically reduced the food supply, while the food supply of the north is an important source of food. items in the country.

While he did not subscribe to the fact that the naira would depreciate further, he said: “Fundamentally, one thing that is clear is that Nigerians abroad are the ones sustaining this economy through remittances, even before Nigerians recognize the role that foreign money plays in the economy.

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

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