Naira Overvalued by 30% Against the Dollar: RenCap Report Warns of Unsustainable Rally in 2025
Nigeria’s naira has staged a remarkable comeback in 2025, strengthening to around ₦1,466 per dollar amid surging foreign reserves and policy tweaks—but a fresh report drops a bombshell: the currency is now overvalued by up to 30%, risking a sharp correction that could jolt the economy.
As naira overvaluation 2025 debates heat up, Renaissance Capital Africa’s latest analysis flags the rally as fragile, projecting that sustained stability could inflate the misalignment to 30% by year-end. With the USD/NGN pair dipping 0.77% to ₦1,465.96 on October 3, traders and policymakers face a high-wire act: celebrate the gains or brace for fallout from an artificially propped-up rate. This naira overvalued by 30% claim echoes earlier warnings from the firm, which pegged it at 26% overvalued in July, amid a broader push to assess the currency’s true fair value using real effective exchange rate (REER) metrics.
The naira’s 2025 surge traces back to Central Bank of Nigeria (CBN) interventions under Governor Olayemi Cardoso. After hitting a low of ₦1,700 in late 2024, the currency clawed back 10.49% year-over-year, fueled by $42 billion in reserves—the highest since 2022—and a 40% jump in non-oil revenues to ₦20.5 trillion in the first half. Reforms like unified exchange rates and dollar sales to bureaus curbed speculation, while a weakening U.S. dollar—down 11% against majors—gave the naira a tailwind.
RenCap’s report, titled “Thoughts from Renaissance Capital Africa,” crunches historical REER data to argue the naira’s current strength masks underlying pressures. “Currency stability in the second half of 2025 may push overvaluation to 30%,” analysts wrote, citing recovering import demand and fiscal risks like pre-election spending. They forecast a fair value closer to ₦1,900-₦2,000 per dollar, implying a 25-35% depreciation to restore balance— a scenario that could reignite inflation, now cooling to 22.7% from 34% peaks.
Not everyone agrees. Bismarck Rewane, CEO of Financial Derivatives Company (FDC), counters that the naira remains undervalued by 26.82%, with a purchasing power parity (PPP) rate of ₦1,158 per dollar—bolstered by the greenback’s global slide. United Capital Research echoes optimism, eyeing a year-end close at ₦1,490-₦1,520, thanks to steady inflows and oil output stabilizing at 1.8 million barrels per day. CBN’s own Monetary Policy Committee, in a May statement, projected appreciation to ₦1,450 by December, dismissing overvaluation fears as short-term noise.
The debate isn’t new. Back in 2021, the CBN admitted the naira was overvalued by up to 10% at ₦410 per dollar, sparking devaluations that ballooned to 70% losses by 2024. President Bola Tinubu’s 2023 reforms—scrapping multiple rates and fuel subsidies—aimed to align the naira with market realities, but critics like Chatham House warn against knee-jerk strengthening, which could erode export competitiveness and spur capital flight.
Public sentiment on X mirrors the split. Nairametrics’ October 3 post on the RenCap report drew 24 likes and 11 replies, with users like @EconWatchNG venting: “Overvalued? Tell that to importers bleeding dry—time for reality check before bubble bursts.” Another quipped, “Naira at 1,466? Feels like 2021 all over—enjoy while it lasts.” Broader chatter, including a 2021 thread from @AfricanBizMag on 20-30% overvaluation, resurfaced with 1 like, underscoring recurring themes.
Economists like Uche Uwaleke, during an ASAM webinar, called the naira “slightly overvalued” but stable, crediting reforms for investor confidence. Cardinal Stone Securities, in a March note, hailed an 11.4% official gain since early 2025 as Africa’s top performer, but flagged inflation risks if rates don’t align.
For everyday Nigerians, the stakes are sky-high. An overvalued naira keeps imports cheap—think affordable rice and gadgets—but hammers exporters like farmers and manufacturers, who face pricier global competition. With 40% youth unemployment and inflation eroding wages, a sudden drop could spike food prices 20-30%, per BLS analogs, straining households already hit by 2024’s 70% devaluation. Remittances, at $20 billion annually, offer a buffer, but volatility deters inflows.
Politically, it ties into Tinubu’s reform legacy ahead of 2027 polls. Fiscal deficits from infrastructure spends could widen to 5% of GDP, pressuring reserves if oil dips below 2 million bpd. Globally, a strong dollar rebound—tied to Fed rate holds—looms as a threat, per Bloomberg, potentially triggering outflows from emerging markets like Nigeria.
Tech plays a role too: Fintech apps like Chipper Cash now track real-time REER via APIs, empowering traders to hedge against swings—user adoption up 25% in Q3. Sports? Nigeria’s Olympic qualifiers could boost morale, but funding relies on stable forex for gear imports.
User intent spikes around “naira overvalued by 30% report,” with Google Trends showing 150% jumps post-Nairametrics share, as investors scour forecasts. Set alerts on Trading Economics for REER updates to spot corrections early.
Coronation Merchant Bank predicts a milder 11.7% slide to ₦1,750 under tight policy, but warns of 29.7% drops to ₦2,200 if easing kicks in. As Q4 looms, CBN’s next MPC meeting on October 22 could signal tweaks.
In wrapping up, the RenCap report’s stark naira overvalued by 30% verdict against the dollar spotlights 2025’s delicate balance, but divergent expert takes and policy buffers point to managed volatility—eyes on reserves and inflation for a resilient close.
By Sam Michael
October 3, 2025
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SEO Tags: naira overvalued by 30%, naira overvaluation 2025, USD NGN exchange rate, RenCap naira report, naira vs dollar forecast, Nigerian currency overvalued, naira depreciation risks# Naira Overvalued by 30% Against the Dollar: RenCap Report Warns of Unsustainable Rally in 2025
Nigeria’s naira has staged a remarkable comeback in 2025, strengthening to around ₦1,466 per dollar amid surging foreign reserves and policy tweaks—but a fresh report drops a bombshell: the currency is now overvalued by up to 30%, risking a sharp correction that could jolt the economy.
As naira overvaluation 2025 debates heat up, Renaissance Capital Africa’s latest analysis flags the rally as fragile, projecting that sustained stability could inflate the misalignment to 30% by year-end. With the USD/NGN pair dipping 0.77% to ₦1,465.96 on October 3, traders and policymakers face a high-wire act: celebrate the gains or brace for fallout from an artificially propped-up rate. This naira overvalued by 30% claim echoes earlier warnings from the firm, which pegged it