The central bank of Nigeria’s (CBN) foreign exchange strategy has resulted in a significant premium between official and parallel. This according to Bank of America Economist Tatonga Rusike may result in CBN’s move to bridge the deficit by devaluation next year.
Read Also: Naira Crashes to #740/$1 on Black Market
Bank of America Analysis on Naira
Giving the analysis, Rusike said the naira is overpriced based on three indicators:
- The popular black-market rate
- The central bank’s real effective exchange rate
- And the Bank of America’s “currency fair value research”
Rusike also explained that they “see scope for it to weaken by an equivalent amount over the next 6 – 9 months, taking it as high as ₦520 per USD.”
She also noted the devaluation might not take place until after the February 2023 presidential elections. 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 To Know
- The exchange rate between the naira and the US dollar has been fluctuating from around ₦440 to $1. It however trades for around ₦742 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 (ABDON) had earlier blamed the CBN for the great margin between official and secondary market rates.
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