The naira remains undervalued by about 11 percent despite recent foreign exchange reforms, according to Bismarck Rewane, managing director of Financial Derivatives Company. Rewane said the naira undervalued position becomes clear when assessed using the purchasing power parity model, which compares domestic prices with international benchmarks to estimate fair currency value.
Speaking at the 2026 Economic Outlook forum organised by the Association of Corporate Treasurers of Nigeria, Rewane explained that the naira undervalued gap suggests further adjustment may occur over time. He noted that currencies typically gravitate toward their PPP-implied value within a five-year period, especially in markets undergoing structural reforms.
According to his analysis, the fair value of the naira currently stands at approximately N1,256.79 to the US dollar, indicating that the currency still trades below its theoretical equilibrium.
PPP Model Shows Structural Pressures on the Naira
Rewane said the naira undervalued status reflects deeper structural and cyclical pressures in Nigeria’s economy. These include import dependence, inflation differentials, capital flow volatility, and persistent FX demand from energy and manufacturing sectors.
He added that while short-term FX movements can be volatile, long-term valuation models like PPP offer a clearer picture of where the currency should settle. As reforms in the foreign exchange market mature, he expects pricing distortions to reduce gradually.
The economist cautioned, however, that convergence toward fair value does not happen instantly. Instead, it depends on fiscal discipline, monetary stability, and sustained confidence in Nigeria’s FX framework.
Why the Naira Undervalued Status Matters for Treasurers
Rewane used the session to highlight the practical implications of a naira undervalued environment for corporate treasurers. He said treasury managers must prioritise liquidity optimisation while managing foreign-currency exposure carefully.
According to him, cautious optimism remains essential, especially when dealing with FX-linked obligations. He stressed that treasurers should align cash-flow planning with realistic exchange-rate expectations rather than short-term market noise.
Treasury Strategies in a Naira Undervalued Environment
The event also featured insights from senior treasury executives, including Adeyinka Ogunnubi of CFAO Nigeria and Titilola Osinowo of Ardova Plc. Osinowo encouraged treasurers to adopt more structured hedging strategies, particularly through FX swaps and FX options.
She emphasised natural hedging, noting that companies with dollar receivables should align dollar expenses accordingly. This approach, she said, helps reduce exposure risks in a naira undervalued market without excessive reliance on speculative instruments.
Ogunnubi added that treasury management fundamentally revolves around maximising every unit of cash while minimising risk. He explained that once firms move from negative to positive cash positions, the focus should shift to deploying capital efficiently rather than holding idle liquidity.
Outlook for the Naira Going Forward
While the naira undervalued gap remains evident, Rewane suggested that gradual convergence toward fair value is possible if Nigeria sustains FX reforms and improves macroeconomic coordination. He noted that stable reserves, disciplined fiscal policy, and credible market signals would play a decisive role.
For corporate treasurers and investors, the naira undervalued condition presents both risks and opportunities. Effective liquidity planning, smart allocation strategies, and disciplined hedging will remain critical as the currency continues its adjustment path.
