Bank of America has predicted that naira will weaken further in the coming year (2023), such that its value may drop by 20%.
In a note to his clients cited by BizWatch Nigeria, Tatonga Rusike, an economist, argued that “the naira is overvalued based on three indicators: the parallel rate, the central bank’s real effective exchange rate index, and our own currency fair value analysis.
The parallel rate is now as much as 70% below the market rate while the real effective exchange rate has appreciated by up to 40% since 2018. Furthermore, our fair value analysis suggests the naira is 20% overvalued: we see scope for it to weaken by an equivalent amount over the next 6-9 months, taking it to as high as 520 per USD.’
The Bank of America, however, noted that while the naira would come under increasing pressure “due to limited government external borrowing,” devaluation of the currency is unlikely to happen until after the February 2023 presidential elections.
A look into naira fall
In the wake of the Fourth Republic in 1999, the naira was exchanged at N92.34 per $1; further falling to N132.89 per $1 in 2004.
Fast-forward to 2015 when former President Goodluck Jonathan was handing over power to President Muhammadu Buhari, the Nigerian currency exchanged at N198.914 per $1.
However, seven years after, the naira has significantly lost its value, such that it last traded officially at N436.61, which represents a 120.5% decline.
However, while it last traded officially at N436.61, the naira was last exchanged at N731.46 at the black market.
