JP Morgan Predicts Naira-Dollar Exchange Rate of N850/$ by December

A projection by US multinational financial services firm JP Morgan states that the naira will trade at N850/$ at the Investors’ and Exporters’ Forex window before the end of 2023.

JP Morgan acknowledges the recent efforts to restore a flexible FX regime and believes that these efforts may be sustained alongside tighter monetary conditions.

The interbank FX rate has risen in recent days to over 900, closing the gap with the parallel rate, which is now just above 1,000.

JP Morgan expects the USD/NGN rate to move lower towards 850 by year-end due to tighter policy, more attractive rates and FX levels, which deter incremental dollarization and potentially attract some foreign capital.

JP Morgan suggests that authorities may need to consider further measures, such as requiring commercial banks to adhere to regulatory limits on FX net open positions.

Other measures recommended by JP Morgan include exploring the introduction of a cash reserve ratio on FX deposits and the issuance of dollar assets onshore.

On the fiscal side, JP Morgan advises the government to require all taxes to be paid in local currency.

According to JP Morgan, some of these measures may already be incorporated in the Federal Government’s forthcoming revision of guidelines relating to the operations of the forex market.

JP Morgan also urges oil exporting companies to consider selling forex proceeds on the interbank market rather than directly to the Central Bank of Nigeria.

The company believes that the willing buyer-willing seller nature of the foreign exchange market contributes to extreme volatility and hinders price discovery. JP Morgan suggests a reconsideration of the strategy by the financial regulator.

Commenting on Nigeria’s plan to obtain $10bn in foreign currency inflows to ease liquidity in the forex market, JP Morgan states that the government may face challenges in raising such an amount, citing delays in expected Afrexim funding and lower dividends from Nigeria LNG Limited.

Meanwhile, Aminu Gwadabe, President of the Association of Bureau de Change Operators of Nigeria, recommends the securitisation of domestic remittances as part of the planned new forex rules. In an exclusive interview with NewsNow, he applauds the government’s plan to operate a single exchange market and suggests focusing on securitising diaspora remittances for Bureau de Change.

Gwadabe explains, “We should leave energy proceeds; the government should focus on remittances from the diaspora. It is about $20bn annually compared to that of NLNG that is from our future revenue of 14 years.”

He also calls on the government to utilize the Bureau de Change as a vehicle to implement this strategy.