Investment Bank Analysts Say Naira Most Expensive Currency in Africa, Give Reasons
- Investment Bank, RenCap Africa has released a new report showing the average real effective exchange rate
- In the report, RenCap Africa believes that the naira is overvalued by 26% and is the Most Expensive Currency in Africa
- The value of the naira in recent weeks has improved against the US dollar in the foreign exchange markets
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Renaissance Capital Africa (RenCap Africa) has warned that Nigeria’s naira is overvalued by as much as 26%
The investment bank expressed concerns that naira may come under renewed pressure beyond 2025, as import demand recovers and fiscal risks mount.
Source: Getty Images
Naira most expensive in Africa
Renaissance Capital Africa, in a new report, estimated that the naira is overvalued compared to its 25-year real effective exchange rate (REER) average.
It added that the overvaluation persists even after adjusting for inflation and GDP rebasing, and it may be masking deeper structural imbalances.
The report cautioned that recent gains in the naira are being propped up by temporary factors such as a surge in the current account surplus and modest foreign inflows attracted by elevated bond yields.
It stated:
“The naira is now the most expensive currency in Africa on a REER basis. Current levels are unlikely to hold if oil prices remain subdued and imports pick up."
RenCap analysts argue the current strength of the currency is no longer backed by underlying fundamentals.
The report added that FX reserves are falling, despite a projected $14.1 billion current account surplus for 2025, undermining the case for continued naira strength, BusinessDay reports.
According to the International Monetary Fund, Nigeria’s FX reserves are expected to decline from $40 billion to $36 billion by year-end, undermining the sustainability of the naira’s value.
Analysts at RenCap Africa caution that as interest rates decline later this year, a move widely expected by markets, credit growth will pick up, fueling import demand and exposing the currency to pressure.
RenCap added:
“Currency stability in the second half of 2025 may push overvaluation to 30%.
“The outlook becomes trickier from 2026 onward.”
Source: Getty Images
New exchange rate for naira against US dollar
Meanwhile, the Naira appreciated against the United States Dollar at the black market by N1 on Friday, July 25 to quote at N1,535/$1, in contrast to the N1,536/$1 it was transacted on Thursday.
However, it depreciated against the greenback in the Nigerian Autonomous Foreign Exchange Market (NAFEM) window by 22 Kobo or 0.01% to N1,534.66/$1 from the previous day’s value of N1,534.88/$1.
At the same official market, the Nigerian currency, however, improved its value against the pound sterling yesterday by N3.56 to close at N2,062.66/£1 compared with the preceding session’s N2,070.88/£1 and gained N8.60 against the euro to finish at N1,800.84/€1 versus Thursday’s closing price of N1,807.06/€1.
Rewane on new exchange rate
Earlier, Legit.ng reported that economist Bismark Rewane has projected a favourable exchange rate performance for the naira against the US dollar.
The financial expert also forecasted a slight drop in inflation to 23.15% and a 50 basis point cut in the Monetary Policy Rate.
The Nigerian currency has enjoyed a strong performance in recent days, both at the official and unofficial forex markets.
Source: Legit.ng
