The Bank of America has stated that the official exchange rate of the naira will weaken to 520 per dollar in 2023 as it currently trades for 20 percent above its fair value.
This is according to a report by Bloomberg citing the analysis of the naira by the Bank of America.
The bank asserted that based on three indicators–the widely-used black-market rate, the central bank’s real effective exchange rate, and the bank’s currency fair value analysis, Nigeria’s local currency unit is set to weaken further next year as its current exchange rate to the dollar is well above fair value.
Citing the comment of an economist, Tatonga Rusike, in a note to clients Bloomberg wrote “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.”
According to the bank, the naira will come under increasing pressure due to limited government external borrowing. However, it stated that a devaluation of the local currency is unfeasible until after the February 2023 presidential elections.
Meanwhile, at the official exchange rate, the naira has depreciated by about 10% year-to-date and by 31 percent at the parallel rate. The bank stated that “the greater the disparity with the official market, the higher the likelihood of increasing excess demand for foreign currency on the parallel market.”
There exists a significantly large disparity between Nigeria’s official exchange rate and the parallel market where the currency it is freely traded. As of this writing, data from FMDQ exchange shows that the naira’s official exchange rate stands at N441.25/$1. Also, information Rate Captain gathered from forex traders shows that the parallel market rate is around 740/$1. This represents a 67 percent disparity between the controlled official exchange rate and the black market rate as of this writing.
Leave a Reply