The Digest:
A new report from Renaissance Capital Africa has identified the Nigerian naira as the most overvalued currency in Africa, estimating it is overpriced by 30% against the US dollar based on real effective exchange rate models. The analysis suggests that despite apparent stability and strong external reserves, the currency's current strength is artificial and could lead to significant depreciation once interest rates are cut and imports surge.
Key Points:
- Renaissance Capital report states the naira is overvalued by 30% against the dollar.
- Nigeria's currency is identified as the most overvalued in Africa.
- The report suggests that current inflation data may overstate the actual inflation rate.
- Analysis projects inflation could fall to 6% by 2026.
- High 27% policy rate creates one of the world's highest real interest rates at 17%.
- Naira expected to hold at N1,400–N1,450/$ through 2025.
- Warning of potential 30% depreciation in 2026-2027 when rates are cut.
Sources: Nairametrics
