The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has said that the naira is currently undervalued, insisting that ongoing monetary and fiscal reforms will help the currency regain its fair value in the market.
Speaking at an economic policy forum Cardoso said the central bank was committed to restoring investor confidence and transparency in the foreign exchange market.
He said the bank believed that the naira was undervalued and that “with ongoing reforms and better coordination on the fiscal side, its fair value will soon be realised.”
Cardoso explained that distortions in the foreign exchange market, caused by speculation, round-tripping, and multiple exchange rates, had undermined market efficiency and created a false perception of the naira’s true value.
He said the CBN had introduced several measures to stabilise the market, including clearing foreign exchange backlogs, limiting banks’ dollar exposure, and improving transparency in the Nigerian Autonomous Foreign Exchange Market (NAFEM).
He said the aim was to create a stable, transparent, and market-driven system that allows genuine price discovery.
While the CBN believes that the naira is undervalued, several analysts disagree, arguing that the local currency may already be overvalued when measured against economic fundamentals such as inflation, import dependency, and weak productivity.
A recent report by Renaissance Capital Africa said the naira appeared to be about 26 percent overvalued when compared with its historical Real Effective Exchange Rate (REER). The report noted that inflation, which is currently above 27 percent, continues to erode purchasing power and puts pressure on the local currency.
Economist Bismarck Rewane says that the fair value of the naira depends on which market window is being referenced whether the official rate, the NAFEM rate, or the parallel market rate.
He said inconsistencies in supply and demand had prevented the naira from settling at a sustainable rate.
The naira currently trades between ₦1,450 and ₦1,600 per dollar at the NAFEM window, while rates in the parallel market have been seen above ₦1,650. Despite the CBN’s reforms, inflation and weak productivity continue to drive volatility.
Cardoso has said that the CBN’s objective is to achieve what he called “genuine price discovery,” where the exchange rate is determined by actual market forces rather than speculation or administrative control.
Since assuming office in 2023, the CBN has unified multiple exchange windows, cleared part of its forex backlog, and increased interest rates to attract foreign investment. The bank has also sought to boost foreign inflows through improved remittance systems and transparency measures in FX reporting.
Cardoso said the CBN would continue to “strengthen coordination between monetary and fiscal policy” to stabilise the naira and curb inflation.
Despite the CBN’s optimism, economists warn that structural weaknesses such as Nigeria’s dependence on imports, poor manufacturing capacity, and unstable oil revenue continue to threaten exchange rate stability.
Economist Tope Fasua said Cardoso’s optimism was “aspirational,” noting that Nigeria’s economic structure does not yet support a stable or stronger naira.
He said a currency cannot find fair value in a weak economy, adding that Nigeria’s overreliance on imported goods and its limited export base make it vulnerable to global shocks.
Nigeria’s foreign reserves currently stand at around $34 billion, but rising debt service obligations and heavy import costs continue to drain available forex. Although oil prices have remained above $80 per barrel, Nigeria’s dependence on imported refined fuel means dollar demand remains high.
For many Nigerians, the debate over the naira’s fair value seems disconnected from everyday life. Food prices, rent, and transportation costs continue to rise, while wages remain stagnant.
Traders and small business owners say they feel the effects of the naira’s decline daily, regardless of whether it is considered overvalued or undervalued.
Cardoso said the CBN would maintain its reform path and work with fiscal authorities to stabilise the economy and restore trust in Nigeria’s financial system.
He said the bank’s goal was to “create a stable exchange rate environment that reflects the true strength of the Nigerian economy.”
However, many analysts caution that unless inflation is tamed and local production increases, the naira’s real fair value will remain elusive.
They say Nigeria must focus on structural reforms, industrialisation, and non-oil exports if it wants a currency that truly reflects its economic potential.
For now, the debate over whether the naira is undervalued or overvalued continues mirroring the wider struggle to find balance in an economy still recovering from years of instability.
