Naira undervalued by 13% despite FX reforms, says Rewane

The naira remains undervalued by more than 13 percent despite extensive foreign exchange reforms and recent stability in the currency market, according to Bismarck Rewane, managing director and chief executive officer of Financial Derivatives Company (FDC).

Speaking at the Lagos Business School Breakfast session, Rewane said an assessment based on purchasing power parity suggests the local currency is trading below its fair value.

“Compared to the NFEM rate of N1,374.92 to the dollar, the naira is undervalued by 13.22 percent,” Rewane said during his presentation.

The naira strengthened against the dollar ending the week strong as Nigeria’s gross external reserves climbed to a record $50.04 billion, reinforcing investor confidence and boosting the Central Bank of Nigeria’s (CBN) capacity to support the local currency.

The economist explained that the conclusion was reached through an analysis of the prices of various consumer goods and services in Nigeria relative to international benchmarks.

The study examined the local and international prices of products ranging from beverages and food items to electronics, transportation and household products.

According to the presentation, the purchasing power parity value of the naira was estimated at N1,193.22 per dollar compared with the prevailing Nigerian Foreign Exchange Market rate of N1,374.92 per dollar.

Rewane noted that the naira has experienced significant volatility in recent years following the liberalisation of the foreign exchange market.

He said the currency depreciated from around N410 per dollar in 2021 to more than N1,900 per dollar in 2024 as reforms eliminated longstanding distortions in the market.

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While acknowledging the severe depreciation, Rewane argued that the reforms have improved transparency, enhanced market efficiency and narrowed the gap between official and parallel market exchange rates.

“The naira has lost more than 200 percent of its value between 2023 and 2026, but the reforms have improved FX market efficiency and reduced distortions,” he said.

The presentation projected that the naira would remain relatively stable within a range of N1,390 to N1,420 per dollar in the near term.

Rewane attributed the improved outlook to stronger economic fundamentals.

According to the data presented, gross external reserves increased from $32.91 billion in 2023 to $49.58 billion in 2026, while remittance inflows rose from $19.55 billion to $23 billion.

Oil production also improved from 1.24 million barrels per day in 2023 to 1.49 million barrels per day in 2026, supported by stronger export activity from key terminals.

Nigeria’s trade balance expanded to $11.45 billion from $5.72 billion during the same period, while oil prices remained supportive of external earnings.

Despite the improved fundamentals, Rewane cautioned that global uncertainties, inflation differentials and geopolitical risks remain important factors influencing exchange-rate movements.

He maintained, however, that current market conditions suggest the naira is trading below its fundamental value.u

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.