JP Morgan, A US multinational financial services firm, has projected that the naira would trade at N850/$ at the Investors’ and Exporters’ Forex window before the end of 2023.
The firm said the recent efforts to restore a flexible FX regime may be sustained given the willingness to accompany it with tighter monetary conditions.
“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 said.
The US bank pointed out that in addition to the policy actions, authorities may need to consider further measures such as requiring commercial banks to adhere to regulatory limits on FX net open positions.
Other measures, according to JP Morgan, include exploring the introduction of a cash reserve ratio on FX deposits as well as the issuance of dollar assets onshore.
On the fiscal side, the financial services firm advised the government to require all taxes to be paid in local currency.
It added that some of the measures may have already been incorporated in the Federal Government’s forthcoming revision of guidelines relating to the operations of the forex market.
JP Morgan also urged oil exporting companies to consider selling forex proceeds on the interbank market, rather than directly to the Central Bank of Nigeria.
The company also said the willing buyer-willing-seller nature of the foreign exchange market is contributing to the extreme volatility in the FX market.
It said the willing buyer-willing-seller model impeded price discovery, so the financial regulator should reconsider the strategy.
The bank also commented on Nigeria’s plan to obtain $10bn in foreign currency inflows in the next few weeks to ease liquidity in the foreign exchange market.
It added that the ability of the government to raise such an amount may be challenging given the “US$3bn expected from Afrexim has been delayed for months, while Nigeria LNG Limited’s historical dividends to the government have fallen well short of US$2bn annually”.
