Naira Overvalued, Real Exchange Rate Is N600/$1 – Goldman Sachs

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Leading global investment bank, Goldman Sachs says the naira’s current valuation of N369/$1 is unrealistic and unsustainable.

It said the naira should be trading at N600/$1 giving current realities occasioned by a major dip in oil prices.

The American bank was quoted as stating this in a Bloomberg report which analysed the impact of coronavirus-induced slump in oil prices on the currencies of the world’s largest oil producers and emerging markets.

Brent crude prices fell to barely $27 a barrel on Wednesday — their lowest in almost 17 years and bringing their drop this year to 60%.

Nigeria’s foreign exchange reserves however decreased to $36 billion in February 2020 from $38 billion in January, a 20 percent fall from its July 2019 standing.

Goldman Sachs said only a currency devaluation of N600/$1 would see the country generate a healthy current-account surplus at current oil prices.

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“Nigeria, Africa’s biggest oil producer, is reacting to the latest crisis in a similar fashion to that of 2014 — by trying to stop the naira from weakening and tightening capital controls. The central bank, which has kept the naira in a quasi-peg since mid-2017, said last week it has no plans for a devaluation and threatened to investigate any local currency dealers suggesting otherwise.

“It might only be a matter of time before it has to give up, however. Its foreign reserves have fallen by 20% since July to $36 billion and the naira is the most overvalued of the major oil currencies, according to the International Monetary Fund’s REER calculations. Goldman Sachs Group Inc. says it would take an exchange rate of 600 naira per dollar for Nigeria to generate a healthy current-account surplus at today’s oil prices. That’s almost 40% weaker than the current rate of 369,” the report read in part.

But the Central Bank maintained that fears over the shrinking foreign reserves are unjustified, saying the reserves would remain “robust” despite panic generated by the coronavirus.

The apex bank noted that market fundamentals do not support naira devaluation at this time.


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John is a University of Lagos-trained journalist who has read almost every novel written by Chinua Achebe, Jeffrey Archer and Dan Brown. He's an expert Scrabble and draughts player who is also excellent at swimming.
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