Goldman sees further gains in Nigerian naira after world-beating rally
TLDR
- Naira named top-performing global currency in April by Goldman Sachs, surging over 12% against the dollar with positive forecasts.
- Central Bank of Nigeria's effective policy management and interest rate hikes driving Naira's recovery from recent devaluations.
- Wall Street bank's economists adjust Naira strength forecast to potentially surpass N1,200/$ due to CBN's aggressive measures, including significant interest rate increases.
Goldman Sachs asserts that the Naira has emerged as the top-performing currency globally in April, with expectations for further gains, bolstered by effective policy management by the Central Bank of Nigeria (CBN). In April alone, the Naira has surged by over 12% against the dollar, building on a robust 14% surge in March.
The currency's rally is attributed to capital inflows and successive interest rate hikes, aiding its recovery from substantial losses incurred following two devaluations since last June, prompted by the floating of the local currency and the unification of the foreign exchange (FX) market.
Economists at the Wall Street bank, who initially forecasted in February that the Naira would strengthen to N1,200/$ in 2024, now project that it could exceed this level. This adjustment is attributed to the central bank's aggressive measures, including a total of 600 basis points in interest rate increases during policy meetings in February and March.
Key Takeaways
While the Naira experiences gains, Nigeria is witnessing a rapid depletion of its foreign exchange reserves at a rate not seen in four years. This development has raised concerns regarding the Central Bank's strategy, particularly as it pledged to allow the currency to float more freely. Since March 18, when the Naira began its rebound from record-low levels against the dollar, liquid reserves have declined by 5.6%, reaching $31.7 billion as of April 12, according to Bloomberg's calculations based on the latest data from the CBN. This marks the most significant decline in reserves over a similar period since April 2020, as per Bloomberg's analysis.
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