Nigeria’s persistent efforts to stabilize its currency are finally showing promising results, with analysts now predicting a significant rebound for the beleaguered naira before the year’s end.
Analysts from Goldman Sachs Group Inc, Citigroup Inc, and Standard Chartered Plc anticipate the naira to strengthen by up to 25% against the dollar this year. This optimism stems from substantial interest rate hikes and other measures aimed at attracting foreign investment, which are beginning to yield positive outcomes.
The naira has undergone two devaluations since June, following President Bola Tinubu’s decision to abandon Nigeria’s long-standing fixed exchange rate policy. These reforms, coupled with others to attract foreign investment and stimulate the economy, have been challenging but are showing signs of stability. Despite sliding by 70% against the dollar to a low of 1,627 earlier this month, the naira has recently stabilized. Moreover, the gap between the official and unofficial market rates has significantly narrowed.
Razia Khan, Standard Chartered’s chief economist for Africa and the Middle East, foresees the naira closing out 2024 within the range of 1,200 to 1,300 against the dollar. She even suggests the possibility of testing 1,100 naira per dollar or lower under more favorable conditions.
This optimism is bolstered by various measures aimed at supporting the currency, including a substantial 400 basis point interest rate hike by the central bank last month to 22.75%, with further tightening anticipated in the upcoming late March policy meeting.
Under the leadership of Governor Olayemi Cardoso, appointed by President Tinubu, the central bank has implemented measures to liberalize the naira and enhance local dollar liquidity.
Recent data from broker FMDQ shows the naira strengthening by 0.4% to 1,602 naira per dollar on Friday, slightly stronger than the parallel market rate of 1,610 naira per dollar.
Goldman Sachs analysts, including Kamakshya Trivedi and Caesar Maasry, predict that the naira could rally to 1,200 against the dollar as investors seek higher returns from sovereign debt issued by frontier markets.
Yields on Nigeria’s 12-month notes rose to 21.5% at the auction this month, 450 basis points higher than the previous sale in January, attracting significant interest from foreign investors.
Nigeria’s efforts to enhance liquidity are showing positive outcomes, with foreign investor portfolio asset purchases exceeding $1 billion in February and total inflows for the year surpassing $2.3 billion, compared to $3.9 billion for the entirety of 2023, according to the central bank.
Additionally, overseas remittances surged more than fourfold to $1.3 billion in February compared to the previous month.
The central bank is anticipated to raise the benchmark interest rate once again at its March 25-26 meeting, according to Tatonga Rusike, sub-Saharan Africa economist at Bank of America Corp.
