TatongaRusike, a Bank of America economist has stated that Nigeria’s currency is currently overvalued by up to 20%. It will most likely devalue in 2030. The remarks by the economist came just days after the currency’s exchange rate reportedly touched a new low of just under 750 naira for every U.S. dollar on the parallel market.
Currency Fair Value Analysis
Tatonga Rusike from Bank of America says that the Nigerian currency is currently at a level below the 450/1 mark in May 2021. He believes it will fall to 20% by 2023. In his October 18 note to clients, Rusike reportedly said the bank came to this conclusion after examining indicators like the central bank’s real effective exchange rate and the widely used parallel market exchange rate.
In addition to using the two exchange rates, the bank also used its own currency fair value analysis to determine the extent of the naira’s overvaluation. Meanwhile, Rusike’s devaluation comments came just days after the currency’s exchange rate reportedly touched a new low of just under 750 naira for every U.S. dollar on the parallel market.
Bitcoin.com News had reported that on October 3, the exchange rate between the Nigerian naira and the US dollar dropped to 735 per dollar. In the past, Nigerian monetary authorities have laid the blame for the currency’s woes on forex speculators. Ongoing shortages of the key resource are also seen as another factor contributing to the naira’s freefall.
In 2023, Authorities are likely to devalue the Naira
Rusike, like many other Nigerian experts is insistent that the naira would continue to fall against the U.S. Dollar, which has been steadily increasing in value compared with other currencies. He said that:
It is possible for the price to fall by an equal amount in six to nine months. This could lead to a drop of as much as USD 520.
Nigeria’s statistician-general, Prince Semiu Adeyemi, recently suggested that the naira’s continuing free-fall is partly the reason why the country’s inflation rate marginally rose from 20.52% in August to 20.77% in September.
Meanwhile, the Bank of America has warned that if the gap between the official exchange and parallel market rate is not narrowed, this could lead to a greater “likelihood of increasing excess demand for foreign currency on the parallel market.”
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