‘Naira’s outlook brightening amid steps to stabilise currency’

Nigeria’s protracted battle to stabilise its currency is finally bearing fruit, with analysts now forecasting the battered naira could rebound sharply before the end of the year, Bloomberg said in a report on Monday. According to the news agency, analysts at Goldman Sachs Group Inc, Citigroup Inc. and Standard Chartered Plc see the naira advancing by as much as 25% against the dollar this year, as jumbo interest-rate increases and other steps to attract foreign capital yield results.

The naira has been devalued twice since June after newly-elected President Bola Tinubu ended Nigeria’s longstanding practice of fixing the exchange rate, alongside other reforms to lure foreign money and boost the economy. While the process has been painful, with the currency sliding 70 per cent against the greenback to a low of 1,627 earlier this month, the naira has steadied in recent days. Further, the gap between the official and unofficial market rate has narrowed sharply. Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, sees the naira ending 2024 in a 1,200-1,300 per dollar range. “In more benign conditions, we could test even N1,100 a dollar or lower,” she said.

That optimism is buoyed by a series of measures to support the currency, including a massive 400 basis point increase in interest rates by the central bank last month to 22.75 per cent, with more tightening expected when its policymakers meet again in late March. “Some of the forex backlogs have been cleared, monetary policy has been tightened and the transmission mechanism of policy is more effective,” Khan said.

New leadership installed by Tinubu at the Central Bank of Nigeria (CBN) under Governor Olayemi Cardoso has enacted a series of measures to free up the naira and boost local dollar liquidity. The naira rose 0.4 per cent to N1,602 a dollar on Friday, according to broker FMDQ, the most recent day for which data are available. The official rate is slightly stronger than the parallel market rate of 1,610 naira/dollar. The rate has been within three years either side of the parallel-market rate in the past two weeks, compared to a spread of more than 30 per cent in January.

Goldman Sachs analysts including Kamakshya Trivedi and Caesar Maasry predicted that the naira could rally to 1,200 a dollar as investors seek richer returns from sovereign debt issued by frontier markets. Yields on Nigeria’s 12-month notes rose to 21.5 per cent at the auction this month, 450 basis points higher than the previous sale on Jan. 19, with foreigners buying almost fourth-fifths of the N1.053 trillion on offer, lured by the sharply higher yields.

Nigeria’s liquidity-boosting measures are starting to pay off: Foreign-investor portfolio asset purchases exceeded $1 billion in February, bringing total inflows this year to at least $2.3 billion, compared with $3.9 billion for the whole of 2023, according to the central bank. Overseas remittances rose more than fourfold to $1.3 billion in February from a month earlier, it said. The central bank is expected to increase benchmark interest rate again at its March 25-26 meeting, said Tatonga Rusike, sub-Saharan Africa economist at Bank of America Corp. “We still expect another 200 basis points hike in March meeting, then pauses thereafter,” Rusike said. “Our yearend forecast for naira is 1,550 a dollar and a 2025 level of 1,500 a dollar.”

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