Bank of America Speaks on Naira Devaluation as Tinubu Reveals Why he Unified The Exchange Rates
- The Bank of America has announced that the naira is undervalued and said the exchange rate might peak between N650 to N650 a dollar
- The Bank of America analysts said the appropriate estimate of N680 means the naira is now 12% undervalued
- However, President Bola Tinubu has revealed why he unified the exchange rate and removed subsidies
The Nigerian naira has gone from overvalued to undervalued as Nigeria embarked on foreign exchange rate reforms, according to analysts at Bank of America on Wednesday, June 28, 2023.
The analysts said the naira, currently trading at over N700 to the US dollar, will return to N650-N680 to the dollar.
Source: Getty Images
Naira loses 60% of its value in 30 days
The analysts said:
PAY ATTENTION: Join Legit.ng Telegram channel! Never miss important updates!
“We now see a USDNGN fair value of 680 per USD (previously 580). However, USDNGN is likely to trade above this level, with year-end 700, and a return to 650-680 in early 2024.”
Since the country floated the naira on June 14, 2023, the currency has depreciated by over 60% compared to the N460 per dollar it traded before the float.
On Tuesday, June 27, 2023, the naira closed at N780 per dollar, data from FMDQ said.
The Bank of America’s appropriate estimate of N680 means the naira is now 12% undervalued.
Per the analysts, the transition time and aligning rates are yet to unlock more dollars into the official market, which may take some time.
BusinessDay reports that the bank said higher oil exports of about $12 billion and a liberalized import regime of $10 billion increase in non-oil imports can still result in consistent current account excesses over the medium term and would boost dollar inflows needed to strengthen the naira.
“An additional $12-13 billion on export revenues from higher oil production is moderated by a liberalized imports regime that could add $10 billion as non-oil imports increase. Still a net gain of $2-3billion that strengthens the current account surplus,” the BofA analysts said.
The move by Africa’s biggest economy to achieve a unified exchange rate after many years of multiple exchange rate windows drew the fuss of economists.
The development comes as President Bola Tinubu explained that he could have chosen to maintain the multiple exchange rate systems and benefit from it but decided to unify the official and parallel market rates to save Nigeria from financial loss.
Tinubu was speaking at a civic reception organized in his honour by the Lagos State Government at the Lagos House in Marina.
Tinubu said he decided in the best interest of Nigeria just as he did with the fuel subsidy.
Tinubu said:
“We will work together with an open-door policy. We will bring Nigeria from the brink of a resilient economy. I want us to be partners to rescue our land and make it a born-again nation.”
CBN readjusts the exchange rate to N645 to a dollar as the black and official market
Legit.ng earlier reported that the Central Bank of Nigeria (CBN) readjusted the exchange rate on its website to N645 to a dollar following the currency's fall in both the black and official markets on Tuesday, June 20, 2023.
At the close of trading, the Nigerian currency traded at N770 to a dollar at the Investors and Exporters (I&E) window, unifying for the first time in eight years.
The apex bank had pegged the local currency at N545 to the dollar as the naira rallied N660 to a dollar in the I&E window.
Source: Legit.ng
