By Omodele Adigun Chinwendu Obienyi
Following the continuous decline of the Naira, the Bank of America has projected that the official exchange rate could likely devalue to N520/$ in 2023.
According to the bank, this is expected to happen because the Naira is well above fair value.
This was disclosed by the bank’s economist, Tatonga Rusike via an emailed note seen by Daily Sun on Wednesday.
Rusike said that the Central Bank of Nigeria’s (CBN) foreign exchange strategy has resulted in a significant premium between official and parallel market rates, adding that the apex bank’s major move next year may be a devaluation to bridge the deficit.
According to Rusike, the naira is 20 per cent overpriced.
He noted that the projection was based on three indicators: the popular black-market rate, central bank’s real effective exchange rate and the Bank of America’s currency fair value research.
Rusike said, “We see scope for it to weaken by an equivalent amount over the next six-nine months, taking it to as high as N520 per USD.”
In the meantime, devaluation of the naira is unlikely to happen until after the February 2023 presidential elections.
This is despite the fact that the naira will likely come under increasing pressure due to limited government external borrowing”.
The bank also warned that the greater the disparity with the official market, the higher the likelihood of increasing excess demand for foreign currency on the parallel market.
Reacting to the US bank’s projections, Managing Director, HighCap Securities, David Adonri, noted that the projection is quite rational and conservative.
When I did a calculation at about 2-3 years ago, the value of the Naira at that time was N800/$1. But as it is now, the official rate which is N441/$1 is completely over-valued which is the reason the Central Bank of Nigeria (CBN) is struggling to defend it.
Whereas the parallel market is close to what the real value of the Naira is. So at the end of the day if the Naira is floated, I expected it to be between N680 and N700 and this is owing to what is happening currently this year. Next year, macroeconomic conditions may change because it is difficult to predict what next year will look like but if the conditions does not improve, then we should be seeing the real value of the Naira at N800/$1”, Adonri said.
Daily Sun investigations revealed that as at 11:25 am on Wednesday, the price of the dollar kept hovering around N737 and N740.
Nigerians and most especially businesses have continued to lament, while urging the Federal Government to create a stable exchange rate and more transaction channels.