In Nigeria, high inflation has been one of the major challenges facing the nation’s economy. During an inflationary period, the domestic currency finds it difficult to act as a medium of exchange and a store of value without adversely affecting output level, income distribution and employment level of the country. Inflation leads to currency depreciation and a rise in foreign exchange rate.
This is obviously the case of the Naira as it has depreciated overtime against the US dollar and other major foreign currencies. For example, the naira exchange rate was ?0.61 per US dollar in 1981, and depreciated to ?2.0206 to a dollar in 1986. In 1991, the exchange rate depreciated to ?9.9095 per dollar, and further depreciated to ?21.886, ?111.9433, ?128.6516, ?153.8616 and ?199.268 in 1996, 2001, 2006, 2011 and 2015 respectively.
However, the corresponding rate of inflation in 1981 stood at 20.8% in Nigeria; and in 1986, the inflation rate declined to 5.7%, and increased to 13.0% in 1990. By 1996, the rate of inflation again rose to 29.3%; in 2001 and 2006, the rates of inflation were 18.9% and 8.2% respectively; and it was 10.8% and 9.0% in 1981 was -20.4%; in 1986, the growth rate of RGDP rose to 1.9%, and declined to 0.01% in 1991. By 1996, 2001, 2006, 2011 and 2015, the growth rates of the RGDP were 4.1%, 9.8%, 6.0%, 7.4% and 3.9% respectively.
