Deutsche Bank AG has added Nigeria to its frontier foreign exchange monitor, a sign of growing investor interest in the naira as the bank expects the currency to strengthen further against the US dollar.
By: Tunji Okunlola
The German lender regards the naira as undervalued and attractive to carry-trade investors, who seek to profit from interest rate differences between currencies. According to Bloomberg, strategists and economists at the Frankfurt-based bank see good carry opportunities and favourable real interest rates supporting the naira’s outlook.
The fiscal risk
Deutsche Bank warned that government finances could threaten the naira’s performance. “The principal risk to the outlook is from the fiscal side,” the bank said on Monday, citing the Debt Management Office’s bond issuance calendar for the quarter, which points to “elevated issuance levels.”
The bank expects fiscal spending to rise ahead of Nigeria’s January 2027 elections but sees “less risk from the elections themselves.”
Other African currencies
The monitor also tracks Angola’s kwanza and Ghana’s cedi. Deutsche Bank said all three economies have performed well this year despite fallout from the conflict in the Middle East. Higher crude oil prices have supported the external positions of Nigeria and Angola, while firmer gold prices have helped Ghana, strengthening their current-account positions.
Relatively high real interest rates and large foreign exchange reserves have also helped draw foreign investor inflows. For Nigeria, the bank said, these factors have improved foreign exchange availability and made local-currency investments more attractive to international investors.
How long the gains last, the report suggests, will depend partly on fiscal developments, foreign exchange liquidity and Nigeria’s ability to keep investor confidence.
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