Goldman Sachs: Naira will appreciate to N1,200/$ in 12 months

Goldman Sachs says the naira will appreciate to N1,200 against the dollars in the next twelve months.

The financial institution made this known in a recent research note by its analysts, Andrew Matheny and Bojosi Morule.

Goldman Sachs said tackling Nigeria’s currency and external liquidity crisis requires positive real interest rates and capital inflows.

The monetary policy committee (MPC) of the Central Bank of Nigeria (CBN), on February 27, raised the monetary policy rate (MPR), which benchmarks interest rates, from 18.75 percent to 22.75 percent.

Due to the central bank’s monetary policy adjustments and bill issuance, Goldman Sachs said both conditions are present in the foreign exchange (FX) market in a limited form for the first time.

“In our view, this is the cue to turn constructive on the FX outlook, even if more decisive rate increases and confirmation of the policy shift are likely required to attract meaningful foreign inflows,” Goldman Sachs said.

“This is especially the case given that, in the near term, inflation on our estimates is likely to rise further on the back of lagged currency depreciation, and given that real interest rates are still comparatively low relative to elsewhere (most notably Egypt, which is likely to be a beneficiary of large inflows on the back of recent policy adjustments).

“We think the Naira looks cheap on a REER basis in a historical context. Added to this, the current account surplus was +3.5% of GDP in 2023Q3, and we expect it to increase above +5.0% on the recent FX moves and associated import compression. 

“We thus see reason for the Naira to be undervalued, and we see it appreciating to 1200 within the next 12 months.”

According to the financial institution, Nigeria is “turning the corner” following its recent currency crisis. 

On February 28, Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), also said the naira is undervalued largely due to distortions by perpetrators in the FX market.