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Goldman Sachs analysts Andrew Matheny and Bojosi Morule in a note to investors have projected a significant appreciation of the Dollar Naira exchange rate to N1,200/$ in 12 months.
The report by the analysts outlines that over the past nine months, the naira has experienced a cumulative weakening of 60-70%.
However, the tide is expected to turn due to the advent of positive real rates and a pivot towards more orthodox policy frameworks, marking the beginning of Nigeria’s recovery from its currency crisis.
“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).
“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,” the analysts said.
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