Goldman Sachs Bolsters Naira Forecast Amid Oil Rebound

Goldman Sachs has strengthened its forecast for the Nigerian Naira's performance against the US Dollar, anticipating further gains due to oil revenues and high yields. The bank lowered its three-month forecast from 1,325 to 1,300 and its six-month projection from 1,300 to 1,275, while retaining a 12-month target of 1,250.

The Naira's appreciation is also supported by its undervaluation, according to Goldman. The bank estimates that the currency remains deeply undervalued, with room for exchange-rate gains exceeding those seen in Kazakhstan's Tenge following its stronger rally.

Goldman expects oil prices to remain elevated due to ongoing Middle East shipping disruptions, which will support Nigeria's export revenues and put pressure on importing currencies like the Indian Rupee. The bank also notes that investors earn interest while holding Nigerian assets, with average yields around 20% on open-market-operation securities maturing in over 14 days.

However, Goldman believes the central bank's accumulation of foreign reserves has limited the Naira's appreciation and may restrain its strength further. The bank allows for policymakers' preference for gradual appreciation but sees this as a constraint on how quickly its targets can be reached.