Market News

BY  Chima Nwokoji

Nigeria’s naira is moving closer to its theoretical fair value, signalling improving foreign exchange (FX) stability, stronger policy credibility and easing speculative pressure, according to leading economists and policy analysts.

Recent assessments indicate that the naira’s undervaluation has narrowed significantly, falling from about 21.17 percent to 10.8 per cent, a development experts say reflects better FX management and a gradual convergence toward fundamentals.

Renowned economist and Managing Director of Financial Derivatives Company (FDC), Mr Bismarck Rewane, estimates the fair value of the naira at approximately N1,257 to the US dollar. Using the purchasing power parity (PPP) model, Rewane said the currency remains undervalued by about 11 percent, despite recent gains.

He made the submission while presenting the HBS 2026 Economic Outlook and during his keynote address at the 2026 Economic Outlook organised by the Association of Corporate Treasurers of Nigeria (ACTN).                            

Rewane anchored the session, offering a detailed analysis of the structural and cyclical forces shaping Nigeria’s exchange-rate dynamics.

According to him, currencies typically converge towards their PPP-implied values over a five-year horizon. “Based on current PPP estimates, the appropriate exchange rate stands at about n1,256.79 to the dollar,” he said, reinforcing the view that the naira is still trading below fair value.

He  believes that there will be stability in the local currency in 2026 but might average N1,413 to the dollar.

Beyond academic models, policymakers and analysts attribute the naira’s recent resilience to structural reforms. Special Adviser to the President on Economic Matters, Mr Tope Fasua, said Nigeria has recorded 10 consecutive quarters of positive trade balances under the current administration, underpinned by a structural shift in FX management.

“We cannot remain stuck in pessimism. FX management is also about managing expectations,” Fasua said, noting that tighter controls have reduced abuse of FX forms and speculative outflows. He highlighted the pruning of Bureau De Change (BDC) operators from thousands to about 80 approved entities, describing the move as critical to curbing leakages.

Fasua also pointed to a 40 percent increase in exports in dollar terms, driven largely by non-oil exports, including refined petroleum products, alongside a roughly 20 percent reduction in imports as local producers substitute foreign inputs. “Many conglomerates now source inputs locally,” he added.

However, analysts urge caution. Dr Yemisi Ayinde, a researcher at Covenant University, Ogun State, acknowledged the administration’s structural interventions, including the recalibration of the BDC ecosystem and the expansion of non-oil exports. He said these reflect “deliberate macroeconomic engineering and a forward-looking trade policy architecture.”

Nonetheless, Ayinde stressed the need for empirical scrutiny. While the naira’s appreciation to about N1,394/$1 at the official market marks a notable short-term correction, he warned against mistaking it for a fully anchored exchange-rate regime.

Sustained stability, he argued, requires a stronger balance of payments, recurrent FX inflows from oil and non-oil exports, diaspora remittances and renewed foreign investment, alongside credible disinflation, fiscal consolidation and transparent FX market governance.

Other analysts remain cautiously optimistic, saying that with improved productivity and disciplined fiscal management, further appreciation—potentially toward N1,000/$1 - could be achievable over time. Still, they agree that lasting currency strength will ultimately depend on fundamentals, institutional credibility and macroeconomic discipline.