Goldman Sachs optimistic naira value will continue to grow if policymakers stay on track

Goldman Sachs, one of the world’s leading global financial institutions, has predicted that Nigeria’s domestic currency, the naira, could extend gains that have already made it the best-performing currency in the world this month if policymakers stay on track.

This follows a 12% gain in the naira against the dollar in April, adding to its 14% surge in March.

This resurgence in the domestic currency has been made possible due to capital inflows and interest rate increases which are helping it to retrace steep losses caused by two devaluations since June after the government loosened currency controls.

According to Bloomberg News, at one stage the naira had wiped 71% from its value, but the recent rebound has boosted it to 1,230 per dollar at its most recent official close versus a 1,627-record low on March 8.

Goldman economists, who predicted in February that the naira would strengthen to 1,200 per dollar during 2024, now see it potentially advancing beyond that level after a raft of measures by the central bank.

Those included 600 basis points of cumulative interest-rate increases at policy meetings in February and March, as well as other steps to ease the local scarcity of dollars that fanned volatility and forced companies to the parallel market.

READ ALSO: Nigeria’s FX reserve dips by $1.02b in 18 days as CBN continues to defend naira against dollar

“This probably can run further; we would see an extension of the move to 1,000 and maybe even sub-1,000,” Goldman’s Andrew Matheny said in an interview. Since Goldman’s call in February, “six weeks have gone by and they’re continuing to hold the line, so that’s encouraging,” he said.

The US lender still maintains its 12-month forecast for the naira at 1,200 per dollar, owing to uncertainty around the ability of the authorities to maintain the reform tempo, though it now sees risks to that upbeat projection.

The currency measures are part of bold steps introduced by President Bola Tinubu after he took power in May to end Nigeria’s years of economic stagnation.

The reforms, which included scrapping fuel subsidies, have sent inflation to 28-year high and fanned cost-of-living crisis that’s caused severe hardship for ordinary Nigerians.

The naira’s collapse, after many years of having its level artificially supported by the central bank on the official market, contributed significantly to the high inflation. But recent weeks have seen the unit regain some of its poise.

By Babajide Okeowo

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