As indicated by Goldman Sachs Group Inc., Nigeria’s naira is positioned to continue its upward trajectory, emerging as the best-performing currency globally for the current month.
This remarkable appreciation, characterized by a 12% surge against the dollar in April following a 1% increase in March, is attributed to capital inflows and interest rate adjustments. These factors have contributed to the currency’s recovery from substantial losses incurred due to two devaluations since June, prompted by the government’s relaxation of currency controls.
Goldman economists, who previously predicted the naira’s strengthening to 1,200 per dollar in 2024, now foresee the potential for further advancement beyond that level. This optimism stems from a series of measures implemented by the central bank, including significant interest-rate increases and efforts to alleviate local dollar scarcity, which had previously fueled market volatility.
Andrew Matheny from Goldman commented, “This probably can run further; we would see an extension of the move to 1,000 and maybe even sub-1,000.” Goldman maintains its 12-month forecast for the naira at 1,200 per dollar, citing uncertainty regarding the authorities’ ability to sustain the reform momentum despite acknowledging the risks to this projection.
The recent currency measures are part of broader reforms initiated by President Bola Tinubu to address Nigeria’s economic stagnation. These reforms, including removing fuel subsidies, have resulted in a surge in inflation and exacerbated the cost-of-living crisis. However, in recent weeks, the naira has been regaining stability.
Efforts to unify the official and parallel exchange rates, a key objective of the Tinubu administration, have shown progress, with the gap narrowing significantly in recent months.
Governor Olayemi Cardoso has pursued aggressive measures to attract foreign investment and address the backlog of dollar orders. Despite facing pushback from businesses regarding rate hikes, Cardoso aims to stabilize inflation and ensure the central bank’s credibility.
Goldman remains cautious about the sustainability of these strategies and the central bank’s ability to maintain its course. Nonetheless, the naira’s resurgence reflects positive developments and signals potential for continued growth.
