Goldman Sachs Predicts N1,200/$ Rate For Naira In 12 Months

Projections by Goldman Sachs analysts have shown that the naira will rebound to N1,200 to a dollar in the next 12 months.

In a report released yesterday, the analysts – Andrew Matheny and Bojosi Morule – predicted that the naira is grossly undervalued.

They said the local currency will appreciate as Nigeria sustains its transition away from unstable monetary policies and significantly negative real interest rates, fueling significant depreciation of the naira.

They said that for the local currency to appreciate, Nigerian authorities are expected to sustain the orthodox monetary pathway and tighten policy adequately to draw in the needed capital inflows.

Across the forex market last week, the Naira remained stable and traded within a similar band as the previous week. At the official Window, the naira fell 4.9 per cent against the base currency (dollar) to N1627.40/$1.00. Similarly, the price currency (naira) dipped 5.3% w/w against the base currency (dollar) to N1600.00/$1.00 at the parallel market.

Analysts at Afrinvest West Africa noted that the spread between the official and parallel rates sustained its streak for the second week though weekly average declined 98.8 per cent to N27.40.

In the week ahead, the Naira is likely to trade within a similar band across FX segments, supported by intensified regulatory spotlight.

Continuing, the Goldman Sachs analysts lauded the recent monetary policy transitions under President Bola Tinubu, noting the significant shift towards inflation targeting and a more flexible exchange rate as positive developments.

The report said: “We argued that addressing Nigeria’s currency and external liquidity crisis required positive real interest rates and capital inflows, conditions that were both present – at least in a limited form – for the first time last week on the back of the central bank’s monetary policy adjustments and bill issuance.

“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.

“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),” it added.

They added: “We think the Naira looks cheap on a REER basis in a historical context. Added to this, the current account surplus was +3.5 per cent of Gross Domestic Product in third quarter of 2023, and we expect it to increase above +5.0 per cent 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.”