Deutsche Bank predicts stronger naira, warns of borrowing risks

Deutsche Bank AG has forecast further gains for the naira, describing the currency as undervalued while warning that increased government borrowing could threaten its outlook.
The Frankfurt-based lender has added Nigeria to its frontier foreign exchange monitor, which tracks currencies in smaller and less liquid markets.
In a client note on Monday, the bank’s strategists and economists cited attractive carry returns and favourable real interest rates as factors supporting the naira.
However, they identified fiscal policy as the main threat to the forecast, pointing to the Debt Management Office’s bond issuance calendar for the quarter as a sign of elevated government borrowing.
The warning highlights a potential challenge for the currency: high interest rates can attract investors seeking returns, but heavy government debt issuance could put pressure on the market.
The naira has strengthened against the dollar this year. It traded at about N1,339 to the dollar in the official market at the end of August, compared with approximately N1,431 at the start of the year, before closing September at N1,329.50.
Higher foreign exchange reserves and the Central Bank of Nigeria’s recent monetary easing were among the factors cited in the market outlook.
Deutsche Bank launched its frontier foreign exchange monitor in 2023 to assess currencies across Central Asia and sub-Saharan Africa using indicators covering valuation, monetary policy, credit and liquidity.
Nigeria’s inclusion comes amid efforts to attract foreign investment and improve confidence in its foreign exchange market.
Analysts at Quest Merchant Bank have pointed to Nigeria’s return to the FTSE Russell frontier market classification, stressing the importance of developing a liquid, predictable and transparent foreign exchange market.
For investors, the naira’s outlook will depend partly on whether attractive returns continue to draw capital into the market and whether government borrowing puts pressure on the conditions supporting the currency.
Deutsche Bank did not provide a specific naira exchange-rate target or forecast period in the information available for this report.