In a recent report, analysts from Goldman Sachs, a leading global investment bank, predicted that the Nigerian currency, the Naira, will appreciate to N1200 per US dollar in the next 12 months.
The report, authored by Andrew Matheny and Bojosi Morule, analyzed the current economic situation in Nigeria and the impact of the government’s monetary policies.
According to the report, the Naira is currently undervalued and cheap compared to its real effective exchange rate (REER) in a historical context.
The report also noted that Nigeria’s current account surplus was 3.5% of GDP in the third quarter of 2023, and expected it to increase above 5.0% due to the recent foreign exchange (FX) adjustments and the resulting import compression.
The report stated: “We think the Naira looks cheap on a REER basis in a historical context.
Additionally, 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 the reason for the Naira to be undervalued, and we see it appreciating to 1200 within the next 12 months.”
The report also expressed support for the Nigerian government’s monetary policies, which aim to stabilize the Naira and resolve the foreign exchange crisis.
The Central Bank of Nigeria (CBN) has introduced several measures in the last two months, such as issuing new draft guidelines for Bureau de Change (BDC) operators, increasing the FX supply to banks and BDCs, and imposing sanctions on erring FX dealers.
The report said: “We believe that the government’s monetary policies are appropriate and effective in addressing the FX challenges.
We think that the CBN’s actions have increased the FX liquidity and reduced the parallel market premium, which was as high as 100% in November 2023.
We also think that the new BDC guidelines will improve the transparency and efficiency of the FX market and curb speculative activities.”
As of Friday, the Naira traded at N1627.40 per USD at the FMDQ official exchange market, while it traded at N1650 per USD at the parallel market, according to AbokiFX.com.
The report concluded: “We remain optimistic about the outlook of the Naira and expect it to strengthen to N1200 per USD in a year’s time. We think that this will boost Nigeria’s economic growth, reduce inflation, and improve investor confidence.”
