Nigeria's Naira to appreciate to 1,200/dollar in 12 months

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Global investment bank, Goldman Sachs, has projected that the Naira will gain more grounds against the US dollar in the next 12 months.

The bank projected the exchange rate of the local currency to the greenback at N1,200/$ in the short term on the back of policy reforms that could support the currency’s recovery.

In a research note, the New York-based financial institution highlighted the recent upward interest rate adjustment by monetary authorities in Nigeria and a recent N1.6 trillion bill auction by the Central Bank of Nigeria (CBN) as signals that the country is turning the tables on a previous unorthodox policy regime that hindered the Naira from trading freely.

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“These developments have prompted us to shift to a constructive outlook for the Naira, which our FX strategists expect to appreciate to N1,200 vs the USD in 12 months.

“That said, the policy steps implemented to date are only a first step in the right direction and we think more follow-through is required to achieve a durable macro stabilisation,” Goldman Sachs said.

Outlook for the Naira exchange rate has been upbeat after a raft of measures including clampdowns on street traders, whose speculative activities have pressured the currency for long.

The CBN, at the end of January, gave a tall order to lenders to ensure that the net open position limit of their foreign assets and liabilities does not “exceed 20 percent short of zero percent long of shareholders’ fund unimpeded by loss,” giving them only 24 hours to comply with the directive.

In the days that followed, trading in dollar, which had been in low supply in the currency market, more than doubled with trade volume hitting $440 million on February 3, the highest level since June 2022.

Goldman Sachs noted that improved capital inflows and the recent shift from negative real rates (a situation where the inflation rate surpasses the nominal interest rate) to positive real rates (where the nominal interest rate exceeds the inflation rate) indicate that “Nigeria is turning the corner following its recent currency crisis.”

The Naira has lost about 70 percent of its value against the dollar in the past nine months following two devaluation rounds.

Foreign participation in Nigerian assets surpassed $1 billion last month in a mark of increasing confidence of international investors in the fixed-income market, while remittances from abroad climbed more than four times to $1.3 billion.

Goldman Sachs stated that positive real interest rates and capital inflows are central to tackling Nigeria’s external liquidity crisis and challenges in the foreign exchange system.