JP Morgan Forecasts Naira to Reach N850/$ by December

JP Morgan, a prominent global financial services company headquartered in the United States, has made a prediction that by December 2023, the Nigerian naira will be valued at N850/$ at the Investors’ and Exporters’ Forex window.

The US-based bank indicated that the recent efforts to restore a flexible foreign exchange (FX) regime, when coupled with a commitment to tighter monetary conditions, might lead to the maintenance of this framework.

In recent days, the interbank FX rate has increased to over 900, up from 750, significantly narrowing the gap with the parallel rate, which now stands just above 1,000.

JP Morgan stated, “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.”

In addition to these policy actions, JP Morgan suggested that authorities should consider further measures, such as requiring commercial banks to adhere to regulatory limits on FX net open positions. They also proposed exploring the introduction of a cash reserve ratio on FX deposits and the issuance of dollar-denominated assets within Nigeria.

On the fiscal side, the financial services firm advised the government to mandate that all taxes be paid in the local currency. Some of these measures may have already been incorporated into the Federal Government’s upcoming revision of guidelines related to the operation of the forex market.

JP Morgan also urged oil exporting companies to consider selling their forex proceeds on the interbank market rather than directly to the Central Bank of Nigeria. The company pointed out that the willing buyer-willing seller model in the foreign exchange market contributes to extreme volatility and hinders price discovery. Therefore, they recommended that the financial regulator reconsider this strategy.

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