Naira Now Undervalued After Free Float – Bank Of America

The Bank of America (BoA) has said the it sees the value of the naira settling at N680 to the dollar by the end of the year, saying that the currency has moved from overvalued to being undervalued following the government’s recent foreign exchange reform.

This as it postulates that the next move of President Bola Ahmed Tinubu is to curb the oil theft that has besieged the nation.

This was contained in a note by the bank as seen by BusinessDay.

According to the bank, “We now see a USDNGN fair value of 680 per USD (previously 580). However, USDNGN is likely to trade above this level, with year-end 700, and a return to 650-680 in early 2024,” the Bank of America analysts said.

“The caution is transition time, aligning rates and still to unlock more USD into the formal market will take some time. When the dust has settled, the value of the naira should be stronger and appreciating,” the analysts added.

BoA notes that higher oil exports ($12 billion more) and a liberalised import regime ($10 billion increase in non-oil imports) can still result in consistent current account surpluses over the medium term.

“With the current momentum, Tinubu’s next big move should be to reduce oil theft – by reforming the security sector and involving host communities near the pipelines,” Bank of America, one of the big four banking institutions of the United States said in a note seen by press.

If successful, the global financial institution predicts this could increase Nigeria’s crude production to 1.6 million barrels per day (bpd) in 12 to 18 months, from the current 1.2m bpd, barring OPEC limits.

“In our view, increasing crude oil production to 1.6m bpd in the next 12 months is feasible and would be a structural improvement from current levels of about 1.2m bpd. If we include condensates, total oil production could rise from the current 1.4m bpd to 1.8m bpd in two years a level that Nigeria was producing pre-pandemic,” Bank of America added.

Nigeria depends on hydrocarbons for 90 percent of its exports, at least half of fiscal revenues, and about 6 per cent of GDP.

“Higher oil revenues and increased effort for non-oil revenue would ease the high debt service burden,” Bank of America said.