Deutsche Bank has added Nigeria to its frontier FX monitor, describing the naira as undervalued and citing strong reserves, high real interest rates and oil prices as support for further gains.
Deutsche Bank AG says it has added Nigeria to its frontier foreign exchange monitor, describing the naira as undervalued and likely to strengthen further against the dollar.
According to Bloomberg, the German lender said in a client note on Monday, October 19, that the currency offers attractive carry and favourable real interest rates, which it considers supportive of its outlook. The monitor is a watch list of thinly traded frontier currencies.
The Case for the Naira
The naira has appreciated by nearly 8 percent against the dollar this year, placing it among the 10 best-performing currencies out of 144 tracked by Bloomberg. The publication said the currency’s gains have also supported returns on Nigerian equities and local-currency bonds, which rank among the highest-performing globally.
The bank said higher crude oil prices have supported Nigeria’s current-account position, and it cited high real interest rates and ample foreign exchange reserves as factors drawing investor inflows. Nigeria’s gross reserves recently passed $55 billion, the highest in more than 18 years, according to the Central Bank of Nigeria.
Deutsche Bank’s monitor also tracks Angola’s kwanza and Ghana’s cedi. The bank said the three African economies had performed well this year despite the fallout from the conflict in the Middle East. It said higher oil prices have helped Nigeria and Angola, while firmer gold prices have benefited Ghana.
The Main Risk: Government Borrowing
The bank warned that increased government borrowing could pose a risk to the naira’s prospects.
“The principal risk to the outlook is from the fiscal side,” Deutsche Bank said.
It pointed to the Debt Management Office’s bond issuance calendar for the fourth quarter, which signals “elevated issuance levels.” The bank expects fiscal spending to rise ahead of Nigeria’s January elections, but sees “less risk from the elections themselves.”
Why It Matters
Inclusion in the monitor puts the naira alongside other frontier currencies that global investors follow, and could raise Nigeria’s visibility among investors. Separately, FTSE Russell reclassified Nigeria from Unclassified to Frontier Market status effective September 21, 2026, according to one report. Nigeria had been removed from its frontier indices in September 2023 because of difficulties with foreign exchange transactions and repatriating capital.
Analysts also note a possible trade-off. If the Central Bank of Nigeria has to keep interest rates high to support the naira and contain inflation, that could complicate monetary policy. The CBN cut its benchmark rate to 23 percent last month.
A bank’s client note is a forecast and not a guarantee. The reports reviewed did not give a target level for the naira or a time frame for the predicted gains.
