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BREAKING: What Will Happen To Naira By December – US Multinational Financial Services Firm JP Morgan Gives Projection
BREAKING: What Will Happen To Naira By December – US Multinational Financial Services Firm JP Morgan Gives Projection
On Wednesday, JP Morgan, a US multinational financial services firm, forecasted that the naira would be valued at N850/$ at the Investors’ and Exporters’ Forex window by the conclusion of 2023.
The bank also noted that the ongoing initiatives to reinstate a flexible foreign exchange system could be upheld, particularly in conjunction with more stringent monetary policies.
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“The interbank FX rate has risen in recent days to over 900, from 750, thereby significantly closing the gap to the parallel rate which is now just above 1,000.
“We expect USD/NGN to eventually move lower towards 850 by year-end as the combination of tighter policy, as well as more attractive rates and FX levels deter incremental dollarization and perhaps attracts some foreign capital,” JP Morgan asserted.
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In addition to the policy actions, JP Morgan suggested that authorities should consider further measures, such as mandating commercial banks to adhere to regulatory limits on FX net open positions. They also recommended exploring options like implementing a cash reserve ratio on FX deposits and introducing the issuance of dollar assets onshore.
On the fiscal front, the financial services firm advised the government to stipulate that all taxes must be paid in local currency. They noted that some of these measures may already be included in the Federal Government’s forthcoming revision of guidelines for forex market operations.
JP Morgan also encouraged oil exporting companies to contemplate selling their forex proceeds on the interbank market, rather than directly to the Central Bank of Nigeria. The company also pointed out that the willing buyer-willing seller nature of the foreign exchange market contributes to the significant volatility in the FX market. They suggested that this model hinders price discovery and recommended that the financial regulator reevaluate this approach.
Regarding Nigeria’s plan to secure $10 billion in foreign currency inflows in the coming weeks to alleviate liquidity in the foreign exchange market, JP Morgan expressed that achieving such an amount might be challenging. They highlighted that the expected $3 billion from Afrexim has been delayed for months, and Nigeria LNG Limited’s historical dividends to the government have consistently fallen short of $2 billion annually.
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