Naira may devalue by 20% in 2023 — BoA
By Olaleye Aanuoluwapo
It has been said by the Bank Of America that The official rate has depreciated by less than 10 per cent since December 2021 even as the parallel rate is down by nearly a third within the same period, widening the gap to almost 70 per cent, BoA analysis show.
According to a report, economist Tatonga Rusike said in a note to clients 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 shows the naira is 20 per cent overvalued.
“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.”
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.
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 N440.95 to the dollar in the official spot while parallel rate went up to N740, according to the bureau de change operators.
The official rate has depreciated by less than 10 per cent since December 2021 even as the parallel rate is down by nearly a third within the same period, widening the gap to almost 70 per cent, 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.
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.”
What you should know
The exchange rate between the naira and the US dollar at the I&E official window has been fluctuating around N440 to $1, while it trades around N742 to $1 on the black market.
Nigeria’s foreign reserves have been declining due to the CBN’s ongoing intervention in the official market trying to maintain the stability of the local currency.
The Association of Bureau De Change Operators of Nigeria (ABCON) had earlier blamed the apex bank for the significant difference between official and secondary market rates.
According to ABCON, the naira has lost significant value against the dollar since the CBN stopped selling currency to Bureau De Change (BDCs).
