International Monetary Fund (IMF) has stated that the Nigerian currency, Naira, is undervalued by as much as 25.6 per cent, noting that the fair exchange rate against the U.SDollar should be N1,142.04/$.

The official forex rate stands at N1,356.27/$ as of Monday, this week.

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The IMF disclosing this in its newly-released Article IV consultation report on Nigeria, also noted that the country had gained some ground through newly introduced foreign exchange reforms.

An undervalued currency means the exchange rate is weaker than what economic fundamentals would ordinarily support.

The Fund said its Real Effective Exchange Rate (REER) model showed the local currency was still trading below levels justified by the country’s economic fundamentals.

The REER measures the value of a currency against those of major trading partners after adjusting for inflation.

IMF said Nigeria’s REER appreciated by 32 percent in 2025, even though the nominal effective exchange rate (NEER) depreciated by 5.2 percent during the period.

“Despite the REER appreciation that has already taken place in 2025, the EBA-lite REER model indicates a REER gap of -25.6 percent,” the Fund said.

According to the report, the official exchange rate appreciated from N1,535/$ at the end of 2024 to N1,435/$ at the end of 2025, representing a gain of about 6.5 per cent.

However, on an annual average basis, the naira weakened from N1,479/$ in 2024 to N1,520/$ in 2025, translating to a depreciation of 2.8 percent.

The IMF, therefore, noted that the naira should be trading against the dollar at N1,142.04/$ based on the foreign exchange (FX) rate at the end of 2025 or N1,130.88/$ based on the average rate for last year.

The IMF also advised the Central Bank of Nigeria (CBN) to slow the pace of foreign reserve accumulation while continuing to allow two-way movement in the foreign exchange market.

“Given the assessed REER undervaluation, slowing the pace of reserve accumulation and continuing to allow 2-way movement of the naira exchange rate combined with strengthening FX market functioning and advancing and supporting fiscal and structural reforms, particularly those that can improve non-oil/gas imports, would help close the gap,” the fund said.

The IMF added that continued reforms aimed at improving market functioning, strengthening fiscal management and supporting non-oil sectors would help narrow the exchange rate misalignment and strengthen Nigeria’s external position.