Naira Underperforms 2024 Bullish Predictions
Naira exchange rate projections failed in 2024 on accounts of various market disruptions and the visible hands of the Central Bank in the demand and supply equation. With the Central Bank of Nigeria’s (CBN) initial naira’s grossly undervalued tantrum, a slew of investment firms had joined with bullish projections.
At the close of 2024, the naira settled at N1538 per US dollar, an exchange rate higher than predictions made by Goldman Sachs, Fitch Ratings, Renaissance Capital, Financial Derivative Company and others.
In the first quarter of 2024, Goldman Sachs predicted that the naira would appreciate to N1200. The investment firm said in its report title ‘turning the corner’ that its forecast hinged on a combination of positive real rates, capital inflows, and evidence of a shift to a more orthodox policy set-up.
““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 N 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 the lack of credible policy has implied a volatile and sharp depreciation of the naira in recent months and a cumulative 60-70 percent weakening of the currency over the past nine months.
Goldman Sachs, however, set a caveat on it projection, saying policy steps implemented to date are only a first step in the right direction, and more follow-through is required to achieve a durable macrostabilization.
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.
Also, Fitch Ratings anticipated that the exchange rate would settle at N1450 per US dollar last year. A rather bullish Financial Derivate Company predicted an exchange rate of less than N1000, a similar path tolled by Renaissance Capital Limited.
FX reform gained momentum throughout 2024 as Olayemi Cardoso led Central Bank continued to devise means of keeping exchange rates stable. The authority introduced electronic FX trading in the latter part of the year to improve transparency and trade governance.
A slew of analysts and investment banking firms observed the doggedness of the CBN as the authority kept tracking the FX market for loopholes to be fixed.
The CBN removed an exchange rate cap of ±2.5% for International Money Transfer Operators, discontinued limits on interbank FX transactions in addition to the removal of restrictions on interbank proceeds.
“These reforms have shaped the activities in the foreign exchange market as they sought to curtail arbitrages and align the parallel and official market rates while boosting the reserves,” Cedrus Capital Limited said in a note. NGX Index Dips Intraday as Investors Book Profit in ARADEL, NB
