• Saturday, December 09, 2023
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Naira depreciation holds short term pain but gains in long run- Agusto

In memoriam: Bode Agusto, the pioneer of Nigeria’s credit rating agency

Bode Agusto, founder of Lagos-based credit ratings agency, Agusto & Co, anticipates an initial increase in inflation following the naira depreciation at the official market but is optimistic that the corrective measures will ultimately lead to a decline in inflation over the next year.

“Because all these price corrections are taking place at the same time, inflation will rise sharply. However, over the next year, it should drop sharply due to the base effect and as the markets reward these policies,” he said.

Earlier today Nigeria floated its naira currency, allowing buyers and sellers to determine exchange rates in the official foreign exchange (FX) market.

The Investors & Exporters (I&E) window is now quoted N664/$ today, according to FMDQ Securities Exchange Limited.

Agusto further said that non-oil exporters will be encouraged to export at competitive exchange rates.

Read also: What to expect after Nigeria floats naira

“Those who want to invest in Nigeria will also be able to do so at competitive rates. This means that non-oil dollar inflows will improve significantly,” he said.

Agusto said that this inflow should help clear the backlogs on services and factor payments (dividends, due to airlines, etc) and improve government finance.

“Revenue goes up — subsidy removal and higher exchange rates,” he said.

On the monetary side, Agusto projects that “interest rates will rise, yields on the one-year FGN T-bill will be somewhere between the long-term rate of inflation of 13 percent and the short-term rate of 22 percent.”

He also foresees growth and says employment will improve but not immediately.

“If the policies are complemented with improved power and we’re able to transport goods by rail, then we can unleash high growth rates,” he said.

He said that the government will be able to demand higher tax revenues as businesses can now source for FX better.

“Businesses will finally breathe. They will be able to source FX to fund their businesses, power their factories at competitive rates and reduce their logistics costs,” he said.

He projects that the country’s international ratings will improve.

“Even the IMF must be scared at the rate at which Nigeria is implementing positive reforms. I expect our ratings to improve.”