Nigeria’s naira could extend gains that have already made it the best-performing currency in the world this month, said a Goldman Sachs Group Inc. economist — provided policymakers stay on track.
The naira has rallied 12% against the dollar in April, adding to its 14% surge in March. Capital inflows and interest rate increases are helping it to retrace steep losses caused by two devaluations since June after the government loosened currency controls.
At one stage those 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. Local dollar liquidity has also been boosted after it cleared a backlog of overdue dollar purchase agreements estimated at $7 billion.
“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 there is a risk to it could strengthen beyond that.
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 a cost-of-living crisis that’s caused severe hardship for ordinary Nigerians.
