Deutsche Bank sees naira undervalued, adds Nigeria to frontier FX monitor

Deutsche Bank AG has added Nigeria to its frontier foreign exchange monitor and is betting the naira will strengthen against the US dollar. The Frankfurt-based lender said in a client note on Monday that the Nigerian currency is “undervalued” and offers attractive carry alongside favorable real rates.

The frontier FX monitor is a tool Deutsche Bank uses to watch currencies in smaller, less liquid markets. Nigeria joins that monitor as the bank takes a bullish view on the naira.

Why Deutsche Bank likes the naira

Deutsche Bank’s strategists and economists see the naira as cheap. They also point to attractive carry and favorable real rates as supporting factors for the currency. Carry refers to the return investors earn from holding a currency, usually through interest rates. Real rates are interest rates adjusted for inflation. The bank’s view is that these conditions make the naira attractive in the frontier FX space.

Fiscal risk flagged

Deutsche Bank is not ignoring the risks. It said: “The principal risk to the outlook is from the fiscal side.” The bank pointed to the Debt Management Office’s bond issuance calendar for this quarter. That calendar, it said, signals “elevated issuance levels.” The bank’s note places that fiscal risk at the centre of its naira outlook.

What it means for the naira

A bullish call from Deutsche Bank could support sentiment towards the naira among foreign investors. Nigeria’s inclusion in the frontier FX monitor also raises its profile in smaller, less liquid currency markets. But the bank’s own note flags fiscal pressure as the main risk. For Nigerian businesses and consumers, the signal is that the naira’s direction will depend on how the fiscal side is managed, especially the pace of bond issuance.