| Nigeria Economy |    2271 VIEWS  |
| Nigeria Economy | |
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Tuesday, December 22, 2020 / 09:25 AM / By CBN / Header Image
Credit: GTBank
1.0 Introduction
The conduct of Inflation Attitudes Survey (IAS) by the
Statistics Department of the Central Bank of Nigeria commenced in June 2009. It
collects on a quarterly basis, the views of households on changes in prices of
goods and services in the last twelve months, and their expectations of price
changes over the next twelve months. Respondents' opinions were used to further
explore the general public's understanding of the country's monetary policy
framework. This is because inflation expectations and public understanding of
what influences them are important parameters for effective monetary policy
formulation.
The Q4 2020 Inflation Attitudes Survey was conducted
during the period of 16-25 November 2020 with a sample size of 2070 Households
randomly selected from 207 Enumeration Areas (EAs) across the country. The Q4
2020 survey had a response rate of 98.7 per cent.
The highlights of the Q4 2020 IAS are as follows:
2.0 Inflation
Respondents were asked what would become of the
Nigerian economy if prices started to rise faster than they do now. The survey
result showed that 60.8 per cent of the respondents believed that the economy
would end up weaker, 8.4 per cent stated that it would be stronger, 12.8 per
cent of the respondents believed it would make a little difference, while 17.9
per cent did not know. The responses showed considerable support for price
stability, as majority (60.8 per cent) agreed that the economy will end up
weaker. This is consistent with the notion that inflation constrains economic
growth.
When asked how prices have changed over the past 12
months, respondents gave a median answer of 6.2 per cent. Of the total
respondents, 1.7 per cent thought prices had gone down or not changed, 79.1 per
cent felt that prices had risen by at least 3.0 per cent, while 18.3 per cent
felt that prices inched up by more than 1.0 per cent, but less than 3.0 per
cent. Those that had no idea were 0.9 per cent.
The median expectation of price changes over the next
12 months was that prices would inch up by 5.0 per cent. From the total
responses, 66.7 per cent of the respondents expected prices to rise by at least
3 per cent over the next 12 months, 17.0 per cent expected prices to increase
by more than 1 per cent, but less than 3 per cent. However, 15.1 per cent of
the respondents were optimistic that prices over the next 12 months would
either go down or remain the same (Fig. 1, Table 1).
3.0 Interest Rates
The percentage of respondent households who felt that
interest rates had risen in the last 12 months decreased by 2.1 points to 33.2
points in the current quarter when compared to 35.3 points attained in Q3,
2020. On the other hand, 6.1 per cent of respondents believed that interest
rates had fallen, while 45.5 per cent of the households had no idea. The result
revealed that majority of the households had no idea about the direction of
interest rates in the past 12 months.
On the expected change in interest rates on bank loans
and savings over the next 12 months, (27.6 per cent) of the respondents were of
the view that the rates will rise, while 15.2 per cent believed that the rates
will fall. However, 43.4 per cent of the respondents had no idea.
Furthermore, respondents were asked whether it would
be best for the Nigerian economy if interest rates rise or fall. The results
showed that 46.7 per cent indicated that it would be best for the Nigerian
economy if interest rates fell, while 7.1 per cent opted for higher interest
rates. Those that thought that it would make no difference accounted for 10.8
per cent, while 35.3 per cent had no idea (Table1). These responses revealed
that, while many of the respondents favored lower interest rates for the
Nigerian economy, quite a number had no idea whether it should rise or fall
(Fig. 2).
4.0 Interest Rate-Inflation Nexus
Responses on what the impact of a rise in interest
rates in the short and medium terms would have on prices showed that 50.2 per
cent thought a rise in interest rates would make prices in the street rise
slowly in the short term, against 7.3 per cent that disagreed. While in the
medium term, 45.2 per cent agreed that a rise in interest rates would make
prices in the street to rise slowly but 9.8 per cent disagreed (Fig. 3).
Respondents were asked to choose between raising interest rates to keep
inflation down and keeping interest rates down to allow prices to rise.
Responding, 26.3 per cent preferred interest rates to rise to keep inflation
down while 38.4 per cent said they would prefer prices to rise faster, 35.3 per
cent of the respondents had no idea. These responses suggest that given a
trade-off, most of the respondents would prefer higher interest rates to higher
inflation, which is suggestive of the respondent households' support for the
Bank's price stability objective (Fig. 4).
5.0 Opinions on the Central Bank of Nigeria
To assess whether people are aware of the way monetary
policy works in Nigeria, respondents were asked if they knew which group of
people meet to set Nigeria's monetary policy rate. Responding, 6.9 per cent
felt it was the Monetary Policy Committee, 22.6 per cent felt it was the
Federal Ministry of Finance, 35.0 per cent believed it was the Government, 3.0
per cent felt it was the National Assembly, while 0.9 and 31.7 per cent
answered, 'others' and 'do not know', respectively.
When asked to identify which group mostly influences
the direction of interest rates, the result indicated that majority of the
respondent (42.4 per cent) were aware that the Central Bank of Nigeria
influences the direction of interest rates. However, 10.4 per cent stated that
it was the Government ministers, 3.0 and 14.2 per cent were of the opinion that
civil servants and banks influence the rates, respectively, while 30.0 per cent
have no idea.
When asked what best describes the independence of the
Monetary Policy Committee, 29.6 per cent felt it was influenced by the
Government, 9.6 per cent felt it was the federal ministry of finance and 7.6
per cent believed that it was the national assembly, while 15.7 per cent
thought it was not influenced by any arm of government and 37.5 percent had no
idea.
Respondents were asked how satisfied they were with
the Central Bank's management of interest rates in Nigeria. The net
satisfaction index, which is the proportion satisfied less the proportion
dissatisfied, stood at -8.1 per cent. This index indicates net dissatisfaction
with CBN's management of interest rates. Among the group, 2.9 per cent were 'very satisfied', while 18.3 per cent were 'fairly satisfied'. 12.3 per cent
were 'fairly dissatisfied'. However, 20.0 per cent were 'neither satisfied nor
dissatisfied' whereas 17.0 per cent were 'very dissatisfied'. Those who had no
opinion accounted for 29.5 per cent of the respondents (Fig. 5).
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