Deutsche Bank Sees Naira As Undervalued, Warns On Fiscal Pressures

Deutsche Bank strategists have described the naira as undervalued and said the currency offers attractive carry alongside real rates. The 156-year-old global bank also said the naira, which has gained nearly eight per cent against the dollar through 2026, has strong support from Nigeria's improving external position.

Bank flags borrowing risk

Deutsche Bank cautioned that rising government borrowing and fiscal pressures could threaten the currency's positive run, especially as the country approaches its January and February elections. 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 the quarter, which signals “elevated issuance levels.”

Deutsche Bank expects government spending to increase ahead of the elections. But it sees less risk arising directly from the elections themselves. It suggested fiscal policy and borrowing requirements could matter more to the naira's outlook than the political transition.

Bloomberg survey points to 12% gain

A Bloomberg survey last month indicated the naira was heading for its best performance in almost a decade. Gains from President Bola Ahmed Tinubu's economic reforms continue to boost investors' confidence and drive global capital inflows into the Nigerian economy.

Bloomberg said the naira could record an average gain of 12 per cent this year, its strongest annual gain since at least 2018. Analysts surveyed by Bloomberg agreed the naira would continue to appreciate in the months ahead. They expected it to extend its current year-to-date gain of 8.0 per cent by four percentage points to close the year with a full-year gain of 12 per cent.

Bloomberg highlighted increased remittance inflows, higher oil revenues and improved foreign exchange liquidity from recent reforms as factors that have helped stabilise the country's forex position. It said: “Nigeria’s currency is headed for its best performance in almost a decade, as rising dollar inflows from higher oil prices and remittances help insulate the naira from political risks usually associated with its election season.”

The Bloomberg survey expected the naira to end the year at N1,290 per dollar, from its N1,328.92 per dollar close on the survey date. That would extend the year-to-date gain of 8.0 per cent to almost 12 per cent by year-end.

What it means

For Nigerian businesses and consumers, the outlook points to a stronger naira if inflows hold and fiscal borrowing stays contained. The warning on elevated government issuance is the key risk to watch, because it could pressure the currency even as reforms and remittances support it.