Goldman Sachs anticipates strengthening of the Nigerian naira against the US dollar over the next twelve months, projecting an exchange rate of 1200 in the short term. The New York-based investment bank attributes this positive outlook to recent policy reforms aimed at supporting the currency's recovery. Notably, the upward adjustment of interest rates by Nigerian monetary authorities and a substantial N1.6 trillion bill auction by the central bank signify a departure from past unorthodox policies hindering the naira's free trading.
While acknowledging these positive steps, Goldman Sachs emphasizes the need for further measures to ensure lasting macroeconomic stabilization. Recent initiatives, such as crackdowns on speculative activities by street traders, have contributed to the optimistic outlook for the naira's exchange rate. The central bank's directive to lenders to adhere to specified limits on foreign assets and liabilities has also spurred increased trading in the dollar, reaching the highest levels since June 2022.
Goldman Sachs notes that the shift from negative to positive real rates and improved capital inflows signal Nigeria's recovery from its recent currency crisis. Despite the naira losing approximately 70% of its value against the dollar in the past nine months, positive trends such as foreign participation in Nigerian assets exceeding $1 billion and a substantial increase in remittances to $1.3 billion indicate growing international investor confidence. The investment bank underscores the importance of maintaining positive real interest rates and sustaining capital inflows to address Nigeria's external liquidity crisis and challenges in the foreign exchange system.
