After months of sustained decline, the Nigerian currency has rallied since March and is currently ranked as the best-performing fiat currency in April. Andrew Matheny, an economist at Goldman Sachs, said the naira’s momentum can only be maintained if policymakers do not deviate from their current course.
Volatile Nigerian Currency Rallies 12%, Becomes Best-Performing Currency in April
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Maintaining the Momentum of the Naira
According to Goldman Sachs economist Andrew Matheny, the Nigerian currency, the naira, is expected to continue its rally, which has seen it gain 12% against the U.S. dollar in April alone. This rally has propelled the naira-to-USD exchange rate from the low of over NGN1,800 per greenback observed in early March to just over NGN1,230 per dollar recorded in the second week of April.
Despite seeing its first sustained rally since the Central Bank of Nigeria (CBN) abandoned the fixed exchange rate regime, Matheny reportedly said the current momentum can only be maintained if policymakers do not deviate from their current course. As explained in the report, some of the factors that led to the naira’s resurgence include interest rate increases.
In addition to policy measures targeting conventional financial institutions, Nigerian authorities also took steps against crypto exchange platforms, which officials blamed for the naira’s rapid depreciation. As reported by Bitcoin.com News, the Nigerian government has blamed USDT traders on Binance for fueling the depreciation of the naira.
Furthermore, the CBN has cleared a backlog of unsettled dollar purchase agreements estimated at $7 billion. Commenting on the naira’s short-term prospects, Matheny said:
This probably can run further; we would see an extension of the move to 1,000 and maybe even sub-1,000. Six weeks have gone by and they’re continuing to hold the line, so that’s encouraging.
The Painful Policies of the Tinubu Administration
While both the government and the Central Bank of Nigeria’s (CBN) policies have led to the naira rallying to become the best-performing currency in April, the Goldman Sachs economist said doubts linger over the Nigerian government’s willingness to continue with these policies.
Some Nigerians attribute the growing economic challenges to policies pursued by the government of Bola Ahmed Tinubu since it took office. The policy changes introduced by Tinubu’s government include the removal of petrol subsidies, the increase in interest rates, and the devaluation of the naira.
“There are questions about how socially sustainable this strategy will be. We don’t have high conviction that they’re going to stay the course. It’s still early days of the central bank rebuilding its credibility,” the economist said.
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