Goldman Sachs bets big on naira, sees big gain soon

Global investment bank Goldman Sachs is bullish on the naira, predicting significant appreciation in the coming months.

The bank’s analysts see the naira appreciating to 1,200 per dollar in the next year.

This optimistic outlook comes amidst recent policy changes and a surge in capital inflows, narrowing the gap between the official and parallel market exchange rates.

The official naira rate, currently hovering around 1,609 per dollar, according to the FMDQ, has significantly converged with the parallel market rate of 1,610. This marks the longest period of such closeness since the administration of President Tinubu started foreign exchange reforms began last June.

The government’s earlier efforts to attract investment, including a devalued naira and removal of petrol subsidy, yielded initial positive results.

However, the moves pushed inflation to its highest level in nearly 30 years, and fuelled the worst cost of living crisis in the country in decades.

The naira became even more unstable since January.

The Central Bank of Nigeria delivered a huge interest rate hike last month, taking the benchmark lending rate from 18.75 percent to 22.75 percent. It also ordered banks to park more money in reserves.

The efforts appear to be stabilizing the naira.

The CBN said overseas remittances rose more than fourfold to $1.3 billion in February from a month earlier, while foreign-investor portfolio asset purchases exceeded $1 billion in February, bringing total inflows this year to at least $2.3 billion, compared with $3.9 billion for the whole of 2023.

Nigeria’s foreign-exchange reserves at $34.37 billion are the highest since June 21, according to central bank data.

Goldman Sachs analysts see these developments paving the way for a stronger naira.

“When it comes to the metrics of value, carry and real rates,” Nigeria’s naira is now one of the “more attractive frontier currencies, with recent rate increases,” Goldman Sachs analysts including Kamakshya Trivedi and Caesar Maasry wrote in a note, according to Bloomberg.