Bank of America speaks on naira devaluation as Tinubu reveals why he unified exchange rates

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.

Naira loses 60% of its value in 30 days

The analysts said: “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.”