There are speculations that the Central Bank of Nigeria (CBN) will devalue the naira by at least 15 percent to N227 against the dollar in 2016.
Diamond Bank, a Nigerian deposit money bank, which made the prediction, argued that “with lower oil prices to persist and its implications on foreign reserves, further naira devaluation of 15 percent minimum is anticipated in 2016 at the official market.
“We expect the apex bank to review a number of its FX policy in the first Monetary Policy Committee meeting of the year. Emphasis will be placed on the trade impact of FX shortages and its inherent sovereign risks,” the bank added.
In its 2016 business outlook, based on its analysts’ opinion of the Nigerian macroeconomic and investment environment for 2016, the bank predicts that the consumer price index (CPI) which measures inflation in the country would rise to 10 percent in 2016.
Preparing its costumers for the year, the bank said the country’s foreign reserves would “decline further to $27billion in the face of dwindling oil revenue which accounts for 95% of external reserves”.
On falling oil prices, the bank says there is no end in sight, following the conviction of the Iran, OPEC, and the US that $30 sales remain profitable.
“There is no end in sight for the global crude oil glut, implying that crude oil price might fall below $30pb in 2016 since Iran, OPEC and the US appear convinced that production is still profitable at such a low price,” the bank said.
“For the Nigerian economy, this will translate to more pressure on government oil revenue and foreign reserves, weaker naira and double digit inflation.”
The bank applauded President Muhammadu Buhari’s “budget of change”, saying if well implemented would lead to sustainable growth.
“N6.08 trillion budget shows a clear deviation from the past in terms of capital spend, fiscal discipline and policy priority.
“Budget deficit is to double to N2.2trillion even as the government plans to revive the economy by tripling capital expenditure to N1.9trillion. If properly implemented, the 2016 budget should place the country on a sustainable growth path.”