Goldman predicts gains in naira as official, parallel rates converge
TLDR
- Nigerian naira exchange rates converge due to increased capital inflows, with official and parallel rates aligning at around N1,609 per dollar.
- Recent data from FMDQ shows the official rate now closely matches the parallel-market rate, contrasting with a previous spread exceeding 30%.
- Goldman Sachs Group Inc. forecasts a strengthening of the Nigerian currency in the upcoming months, reflecting the current convergence trend.
In a notable development, the official and parallel-market exchange rates for the Nigerian naira have recently shown a significant convergence, attributed to a surge in capital inflows.
According to data from Lagos-based FMDQ, the official exchange rate hovered around N1,609 per dollar last week, closely aligning with the parallel-market rate of around N1,610.
This convergence marks a stark contrast to the situation earlier this year when the spread between the two rates exceeded 30%. Goldman Sachs Group Inc. has weighed in on the trend, predicting a strengthening of the Nigerian currency in the coming months.
Key Takeaways
The current alignment between the official and parallel-market exchange rates marks the longest period of convergence since Nigeria initiated foreign exchange market reforms in June. These reforms were aimed at attracting inflows, resulting in a brief period of closer parity between the official and unofficial market rates. However, the local currency experienced another round of devaluation in January. Last month, a significant interest rate hike contributed to stabilizing the naira. Despite these efforts, recent data indicates that inflation surged to 31.7% in February, potentially prompting the central bank to continue raising borrowing costs. These developments underscore the ongoing efforts to manage Nigeria's currency and economic stability amidst fluctuating market conditions.
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