Naira Undervalued by 13% Despite FX Reforms, Says Rewane as Economic Fundamentals Improve
Nigeria’s currency may be performing better than many expected, but leading economist Bismarck Rewane believes the naira is still trading below its true value. Speaking at the Lagos Business School Breakfast Session, the Managing Director and Chief Executive Officer of Financial Derivatives Company (FDC) revealed that the naira remains undervalued by more than 13 percent despite sweeping foreign exchange reforms and recent improvements in market stability.
According to Rewane, an analysis based on Purchasing Power Parity (PPP) indicates that the naira should be trading closer to N1,193.22 per dollar rather than the current Nigerian Foreign Exchange Market (NFEM) rate of N1,374.92. The findings suggest that while the currency has faced significant pressure in recent years, it is now trading below its estimated fair value. The assessment was based on a comparison of prices of consumer goods and services in Nigeria against international benchmarks, covering products ranging from food and beverages to electronics, transportation, and household items.
The economist noted that the naira’s journey over the last few years has been marked by sharp volatility following the liberalisation of the foreign exchange market. The currency weakened from around N410 per dollar in 2021 to over N1,900 per dollar in 2024, largely due to reforms aimed at removing longstanding distortions in the FX market. Despite the steep depreciation, Rewane argued that the reforms have delivered important gains by improving transparency, increasing market efficiency, and narrowing the gap between official and parallel market exchange rates.
Recent economic indicators have also strengthened confidence in the local currency. Nigeria’s gross external reserves climbed to a record $50.04 billion, while remittance inflows increased from $19.55 billion in 2023 to $23 billion in 2026. Oil production improved from 1.24 million barrels per day to 1.49 million barrels per day during the same period, helping to boost export earnings. Additionally, the country’s trade surplus expanded significantly from $5.72 billion to $11.45 billion, providing further support for the foreign exchange market and helping the naira end the week on a stronger note.
Looking ahead, Rewane projected that the naira would likely remain stable within the N1,390 to N1,420 per dollar range in the near term. However, he warned that global economic uncertainty, inflation differences between countries, and geopolitical tensions could still influence exchange-rate movements. Even so, he maintained that current market conditions and improving economic fundamentals indicate that the naira is trading below its intrinsic value, offering cautious optimism for Nigeria’s currency outlook.
source: Business day