The Goldman Sachs Group, Inc. a leading global financial institution that delivers a broad range of financial services to a large and diversified client base that includes corporations, financial institutions, governments and individuals, founded in 1869, headquartered in New York maintaining offices in all major financial centers around the world, has said that the Naira may likely appreciate to N1,200 against the dollar in the next twelve months.
This was stated in a Goldman Sachs report titled Nigeria- Turning the Corner.
The report stated that the forecast is hinged on a combination of positive real rates, capital inflows, and evidence of a shift to a more orthodox policy set-up.
It said, “we think that Nigeria is turning the corner following its recent currency crisis.”
“These developments have prompted us to shift to a constructive outlook for the Naira, which our FX strategists expect to appreciate to NGN 1200 vs. the USD in 12 months, ” the report said.
“Nigeria is finally emerging from a period of monetary policy transition characterised by an absence of a credible policy anchor and deeply negative real interest rates,” it further stated.
The report said that the lack of credible policy has implied a volatile and sharp depreciation of the Naira in recent months and a cumulative 60-70 per cent weakening of the currency over the past nine months.
Last month the Central Bank of Nigeria through the Monetary Policy Committee jacked up the interest rate by 400 basis points to 22.75 per cent from 18.75 per cent.
it said that the policy shift catalysed by the MPC decision and central bank bill auction last week that brought effective interest rates to 27 per cent is still tentative, “given the new team’s limited track record and ex ante real rates that are now positive but still do not compare favourably to elsewhere (notably Egypt).”
The increase in the benchmark interest has had Investors flocking to Nigerian government debt instruments, pushing yields to record highs across the board and an upsurge in Diaspora remittances to $1.3 billion in February from $300 million in January.
However the report by Goldman Sachs mentioned that the policy steps implemented to date are only a first step in the right direction, and more follow-through is required to achieve a durable macro stabilisation.
It said that the main risk to its outlook is that the authorities do not follow through on the shift to a more orthodox monetary set-up.
“The main risk to our more constructive outlook is that the authorities do not follow through on the shift to a more orthodox monetary set-up that they have articulated and do not tighten policy appropriately to attract the capital inflows required to ease fiscal and external financing constraints,” the report noted.