Bank Of America said Naira will devalue by 20% in 2023
According to Bank of America, Nigeria’s local currency unit would decline more next year since the present exchange rate to the dollar is well beyond fair value.
According to Bloomberg, economist Tatonga Rusike stated in a client note on Tuesday that “three indicators, the widely used black-market rate, the central bank’s real effective exchange rate, and our own currency fair value analysis show the naira is 20% overvalued.”
“We expect a comparable level of weakness over the following six-nine months, leading it to as high as 520 per USD.”
While the naira will face increased pressure “due to restricted government external borrowing,” depreciation is unlikely to occur until after the February 2023 presidential elections, according to the bank.
The biggest economy in Africa has a dual exchange regime governed by a tightly regulated official exchange rate and a parallel market in which the currency is freely exchanged.
According to the bureau de change operators, the official spot rate for the naira was 440.95 to the dollar, but the parallel rate increased to N740.
According to BofA study, the official rate has depreciated by less than 10% since December 2021, but the parallel rate has depreciated by about a third during the same period, expanding the spread to nearly 70%.
The bank stated that “the bigger the discrepancy with the official market, the greater the probability of creating surplus demand for foreign currency on the parallel market.”