Analysts at Renaissance Capital Africa (RenCap) have flagged Nigeria’s naira as significantly overvalued—by as much as 26%—raising fresh concerns about the sustainability of the currency’s current strength amid mounting fiscal pressures and resurging import demand.
In a report released Thursday, RenCap stated that the naira is now the most expensive currency in Africa on a Real Effective Exchange Rate (REER) basis, even after adjusting for inflation and GDP rebasing.
The REER reflects the value of the naira against a basket of global currencies, weighted by trade balances and adjusted for price differentials.
“While naira reforms in 2023 and 2024 rebuilt investor confidence and allowed the exchange rate to float more freely, the recent stability is no longer explained by market fundamentals,” the report noted.
According to RenCap, the naira’s current strength is largely supported by temporary current account surpluses and modest portfolio inflows chasing Nigeria’s high bond yields.
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These supports are now weakening, especially with foreign exchange reserves projected to decline from $40 billion to $36 billion in 2025, despite a forecasted $14.1 billion current account surplus.
The firm warned that as interest rates fall later this year, credit growth will accelerate, boosting import demand and exposing the naira to renewed depreciation pressure. If stability is maintained artificially through 2025, RenCap predicts the overvaluation could rise further to 30%.
Despite RenCap’s assessment, prominent economist Bismarck Rewane, CEO of Financial Derivatives Company, holds a different view.
In a June presentation at the Lagos Business School, Rewane said the naira remains undervalued by 26.82%, citing a Purchasing Power Parity (PPP) benchmark of ₦1,158.50/$, especially with the dollar weakening 8.7% year-to-date against major global currencies.
Similarly, Murtala Sagagi, a member of the Monetary Policy Committee (MPC), recently projected that the naira could appreciate to ₦1,450/$ by year-end, noting its “relative stability” and continued undervaluation.
RenCap also flagged potential political risk ahead of the 2027 general elections, warning that pre-election spending and widening fiscal deficits could undermine Nigeria’s external position—especially if oil exports stay below 2 million barrels per day.
While the analysts maintain a positive near-term outlook on local bonds due to high yields, they caution that Nigeria’s investment case will become “much more uncertain” moving into 2026 and beyond.
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