Naira to be devalued by 20% in 2023, says Bank of America 

By Gbenga Adedayo

Nigerians are yet to see the worse as Bank of America has said value of Nigeria’s currency, the naira, may drop by about 20 percent by 2023 next year, adding that the naira is currently overvalued.

According to the Bank of America, three indicators, namely — the widely-used black-market rate, the central bank’s real effective exchange rate, and “our own currency fair value analysis” — shows the naira is 20% overvalued, economist Tatonga Rusike said in a note to clients on Tuesday.

“We see scope for it to weaken by an equivalent amount over the next six-nine months, taking it to as high as 520 per USD,” Rusike said.

While the naira will come under increasing pressure “due to limited government external borrowing,” devaluation is unlikely to happen until after the February 2023 presidential elections, the bank said.

Media Issues also gathered that the Central Bank of Nigeria is unwilling to devalue the currency this year in order not to negatively affect the chances of the ruling party, the All Progressives Congress (APC) in next year’s presidential elections.

Africa’s largest economy operates a multiple exchange regime dominated by a tightly controlled official exchange rate and a parallel market where the currency is freely traded. The naira exchanged at 440.95 to the dollar in the official spot market as of 12.15 pm and about 731.46 in the parallel market, according to @naira_rates, a Twitter account that tracks the black market.

The official rate has depreciated by less than 10% since December 2021 even as the parallel rate is down by nearly a third within the same period, widening the gap to almost 70%, BofA analysis show. “The greater the disparity with the official market, the higher the likelihood of increasing excess demand for foreign currency on the parallel market,” the bank said.