Naira Will Continue To Depreciate —CBN

The Central Bank of Nigeria (CBN) has indicated that the naira will continue to depreciate, as revealed in its July 2024 Business Expectation Survey (BES). According to the survey, respondent firms believe the current inflation rate is too high and expect the naira to weaken further while borrowing rates are anticipated to rise during the review period.

The CBN’s National BES, released on August 21, 2024, showed that Nigeria’s macroeconomic confidence index fell for the third consecutive month, dropping to 0.1 in July from 3.1, 8.5, and 21.9 in the preceding months. Although still above the neutral 0.0 threshold, the low confidence index suggests weak business conditions and a decline in confidence in Nigeria’s macroeconomic outlook.

Despite the declining confidence, businesses expressed optimism for August 2024 and the following three and six months, with confidence indices projected at 7.6, 19.3, and 30.7, respectively. However, analysts predict weaker-than-expected growth in the confidence index due to persistent challenges such as insecurity, high-interest rates, inefficient power supply, and multiple taxes.

The survey, which gathers insights from businesses across various sectors, also highlighted expectations of continued naira depreciation in the short term, with potential appreciation in the next six months. Borrowing rates are also expected to rise, and the current inflation rate of 34.19% is viewed as too high, particularly among large firms.

The survey noted that optimism in the current month’s business outlook was driven by exporters, while importers and non-exporting businesses were more pessimistic. The survey covered 1,600 business enterprises across Industry, Services, and Agriculture sectors, achieving a response rate of 98.9%. The overall outlook for the next few months remains positive, with optimism driven by sectors like Mining, Quarrying, and Electricity, Gas & Water Supply.