By Emmanuel Nduka
Goldman Sachs economists has predicted that Nigeria’s naira could extend gains that have already made it the best-performing currency in the world in April, provided the country’s current economic team stay on track.
Heritage Times HT reports that the naira has so far rallied 12% against the US dollar in April, adding to its 1% surge in March.
According to a Bloomberg analysis, capital inflows and interest rate increases are helping the naira retrace steep losses caused by two devaluations since June after the government loosened currency controls.
Bloomberg reports that 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.
This comes amid several steps taken by the Nigerian Government, including cumulative interest-rate increases at February and March policy meetings, and steps to ease the local scarcity of dollars that spewed volatility and forced companies to turn to parallel markets as alternative.
“This probably can run further; we would see an extension of the move to 1,000 and maybe even sub-1,000,” Goldman Sachs’ Group Inc. economist, 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.
Tinubu’s reforms, which included scrapping fuel subsidies, have sent inflation to 28-year high and fanned a 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.
Thursday saw it changing hands at 1,188 per dollar on the parallel, or unofficial, market, an improvement from 1,195/dollar the previous day, according to Umar Salisu, a foreign-exchange trader in Lagos.
The rate reflects a narrow 3% premium over the official close on Monday, the most recent day for which data is available, prior to a three-day holiday in Nigeria.
The Goldman Sachs economist was also reserving judgment on whether the central bank will hold the line, though he noted that further rate hikes may not be necessary if inflation stabilizes and starts moderating.
“There are questions about how socially sustainable this strategy will be. We don’t have high conviction that they’re going to stay the course. It’s still early days of the central bank rebuilding its credibility,” he added.
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