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Nigeria has delivered currency reforms that make its naira currency about the cheapest in the world according to its real effective exchange rate or REER.
“The naira is 30% undervalued compared to its long-term history,” according to Charlie Robertson, Head of Macro Strategy, FIM Partners UK Ltd. in a note to clients seen by MoneyCentral.
The naira has slumped almost 70% against the dollar since June last year.
The naira’s REER is now below to its 10-year average, meaning it’s undervalued when benchmarked against a basket of other currencies over the long term.
A currency’s REER is the trade-weighted mean exchange rate in relation to a basket of other major currencies, adjusted for inflation.
Investors are gradually embracing Nigerian debt markets which while still providing a high return in US dollars, now also give a high return in local currency trades.
The central bank has hiked interest rates by 14.75 percentage points since May 2022 to 26.25% to rein in inflation and prop up the currency.
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