The Bank of America (BofA) has said that the naira is currently overvalued by at least 20 per cent at its current exchange rate to the dollar and may weaken further in 2023.
Bloomberg, in a report, quoted economist Tatonga Rusike to have said in a note to clients on Tuesday that, “three indicators, the widely-used black-market rate, the central bank’s real effective exchange rate, and our own currency fair value analysis shows the naira is 20 percent overvalued.
“We see scope for it to weaken by an equivalent amount over the next six-nine months, taking it to as high as 520 per USD.”
The bank said while the naira will come under increasing pressure “due to limited government external borrowing,” devaluation is likely not to happen until after the February 2023 presidential elections.
Africa’s largest economy operates a multiple exchange regime dominated by a tightly controlled official exchange rate and a parallel market where the currency is freely traded.
The naira exchanged at 440.95 to the dollar in the official spot while the parallel rate went up to N740, according to the bureau de change operators.
The official rate has depreciated by less than 10 per cent since December 2021 even as the parallel rate is down by nearly a third within the same period, widening the gap to almost 70 per cent, BofA analysis shows.
“The greater the disparity with the official market, the higher the likelihood of increasing excess demand for foreign currency on the parallel market,” the bank added.
