With the naira already trading at below ₦1,200 to the US
dollar on both the official forex and black markets, one of
the world’s top investment banks believes the local
currency could be No.1 in its performance this month.
Goldman Sachs projects the naira will emerge as this
month’s best performing currency relative to the greenback.
The turnaround comes after the naira plumbed record
lows earlier this year amid acute foreign exchange
shortages and galloping inflation.
However, the tide has dramatically shifted since mid-
March. According to figures published by the FMDQ Group
Plc, the naira has appreciated a little shy of 40% since mid-
March to trade at around ₦1,150 per dollar in the parallel
market.
It hit a 4-month high of ₦1,050 per USD in the black
market last Monday. In the official forex market, the local
currency touched a four-month peak of ₦1,136.04 per
dollar on the same day.
However, Goldman cautions that sustaining the naira’s
recovery will not be an easy walk in the park. They cited
uncertainty over the Tinubu government’s ability to maintain
the reform momentum. Of course, global markets and
dynamics, such as the surging conflicts in Ukraine and
Gaza, will have a tangible impact on the naira.
As Nigeria’s economy grapples with many challenges, from
soaring prices to dwindling foreign reserves, the fate of the
naira remains closely intertwined with global dynamics.
Just as companies offering demo roulette and other
digital services keenly monitor market trends, investors and
policymakers must remain vigilant in assessing the naira’s
long-term trajectory.
CBN’s monetary policy actions behind naira’s surge
The naira’s rally against the dollar is largely thanks to a
series of aggressive monetary policy actions undertaken by
the Central Bank of Nigeria (CBN) to restore stability and
curb inflation.
Faced with spiraling inflation and depleted forex reserves,
the CBN delivered a cumulative 600 basis points of interest
rate hikes across its February and March monetary policy
meetings. These front-loaded rate increases were aimed at
reining in price pressures and shoring up the naira.
Complementing the rate hike, the central bank has also
implemented measures to unclog bottlenecks hampering
dollar liquidity in the economy. The issue had previously
driven businesses towards the parallel market for dollar
exchanges. The naira’s exchange rate on the official FX
market had drifted towards the black market level since Q4
2023, according to Reuters .
“The naira’s recovery has been remarkable…if this trajectory
continues, the Nigerian currency could potentially outshine
all others globally in April,” remarked Kamran Mahmoud, an
emerging markets strategist at Goldman Sachs.
Revised forecast for naira upbeat
The economists at Goldman Sachs have ratcheted up their
projections for the naira amid its dizzying rally. As recently
as February, Goldman had forecast the local unit would
strengthen to around ₦1,200 per dollar by year-end 2024.
However, the naira’s pace of appreciation has compelled
the investment bank to envision even rosier outcomes.
“This probably can run further; we would see an extension
of the move to ₦1,000 and maybe even sub-1,000,”
Goldman’s Andrew Matheny told reporters.
Such ebullience over the naira’s prospects would have
been unthinkable mere months ago when it appeared in
free-fall. Yet the CBN’s forceful actions have lent credence
to the narrative of an economy steadying itself after years
of forex crises.
Compared to Africa’s biggest economies and currencies,
naira is almost the only one that has rallied against the
dollar since the start of April. At N1150 per dollar, it has
appreciated 7.2%, while the South African rand has slipped
nearly 2% since April 9. The same goes for the Kenyan
shilling (-0.5%), Zambian kwacha (-1.5%), and Ghana cedi
(-0.4%).
Lingering economic challenges
Still, Goldman’s revised bullish forecasts for the naira come
with a dose of caution and skepticism over the
sustainability of the current momentum.
“It’s still early days of the central bank rebuilding its
credibility,” Matheny cautioned in his remarks to
Bloomberg. “We don’t have high conviction that they’re
going to stay the course.”
Indeed, for all the naira’s gains of late, Nigeria’s economic
landscape remains fraught with sizable economic
challenges. Inflation has spiraled to multi-decade highs
above 33%, eroding purchasing power and leaving scores
of citizens mired in poverty despite the currency’s rebound.
Other structural bottlenecks could also restrain the naira’s
ascent. Oil production – a key driver of forex inflows – has
been declining as the sector grapples with operational
inefficiencies and security risks. This limits Nigeria’s ability
to capitalize on elevated global crude prices.
Moreover, foreign reserves remain low at under $32.6
billion , enough to cover just 6 months of imports. Central
bank’s forex war chest has been steadily depleting amid
efforts to support the naira and plug capital outflows.
While the naira rebound should help in containing inflation
in the coming months, Nigeria faces a raft of other cost
pressures. This month alone, electricity prices have gone
up threefold in Lagos and other urban regions. Tinubu’s
government is also in talks with labor unions about hiking
the minimum wage come May.
Wrapping up
For now, the Nigerian authorities appear resolute in
defending the naira’s recent gains at all costs. But
questions linger over how sustainable these force-backed
measures truly are in the longer run.
“There are questions about how socially sustainable this
strategy will be,” said Matheny. “We’ll have to be watching
developments closely to assess whether this rally has
legs.”
One key determinant will be whether the aggressive rate
hikes, which have stoked fears of compounding economic
hardships, manage to tame inflation decisively in the
coming months. The CBN may be afforded greater
flexibility in unwinding its tightening if prices start rapidly
decelerating.

https://dailytrust.com/naira-rallies-against-dollar-could-be-worlds-best-this-month/

mynd44 lalasticlala seun nlfpmod fergie001

Good development

God bless CBN

God bless Tinubu

God bless Nigeria

Good news

This stuff should fall fast e really killed my business profit margin.