Deutsche Bank Adds Nigeria to FX Monitor, Predicts Naira Appreciation

By Adedapo Adesanya

Deutsche Bank AG has added Nigeria to its frontier foreign exchange monitor, predicting that the Naira could strengthen further against the dollar, as the lender considers the currency undervalued.

According to Bloomberg, the German bank said in a client note on Monday that the naira offers attractive carry and favourable real interest rates, which support its positive outlook.

However, Deutsche Bank warned that increased government borrowing could threaten the currency’s prospects.

“The principal risk to the outlook is from the fiscal side,” the lender said.

The bank pointed to the Debt Management Office’s bond issuance calendar for the fourth quarter, which indicates elevated borrowing levels.

Deutsche Bank expects government spending to increase ahead of Nigeria’s January elections but sees less risk from the elections themselves.

The Naira has appreciated nearly 8 per cent against the US Dollar this year, ranking among the 10 best-performing currencies out of 144 tracked by Bloomberg.

The currency’s gains have also boosted returns on Nigerian equities and local-currency bonds, which rank among the highest-performing assets globally.

Deutsche Bank’s frontier foreign exchange monitor also tracks Angola’s Kwanza and Ghana’s Cedi.

The lender said the three African economies had performed well this year despite the impact of the conflict in the Middle East.

According to the bank, higher crude oil prices have supported the current account positions of Nigeria and Angola, while stronger gold prices have benefited Ghana.

Deutsche Bank also identified high real interest rates and substantial foreign exchange reserves as factors supporting investor inflows into the three economies.