JP Morgan, a renowned global financial services company headquartered in the United States, has made a significant projection regarding the value of the Nigerian naira. According to JP Morgan’s latest analysis, by December 2023, the naira is anticipated to trade at a rate of N850 per US dollar within the Investors’ and Exporters’ Forex window.
The US-based bank attributed this prediction to the recent initiatives aimed at reinstating a more adaptable foreign exchange (FX) system, coupled with the inclination to align with more stringent monetary policies. The interbank FX rate has recently climbed, surpassing 900 from 750, substantially narrowing the gap compared to the parallel market rate, which now hovers just above 1,000.
JP Morgan further expounded, stating, “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 attract some foreign capital.”
In addition to these policy adjustments, JP Morgan advised that authorities may contemplate additional measures, such as requiring commercial banks to adhere to regulatory limits on FX net open positions. They also suggested exploring the implementation of a cash reserve ratio on FX deposits and the issuance of dollar-denominated assets within the country.
From a fiscal perspective, JP Morgan recommended that the government mandate all tax payments in local currency. These measures, JP Morgan indicated, may have already been incorporated into the Federal Government’s forthcoming revision of guidelines related to forex market operations.
JP Morgan also encouraged oil-exporting companies to consider selling their forex proceeds on the interbank market instead of directly to the Central Bank of Nigeria. The company highlighted that the willing buyer-willing seller model currently in place in the foreign exchange market contributes to extreme volatility and impedes price discovery. As a result, JP Morgan suggested that the financial regulator should reassess this strategy for a more stable and predictable FX market.
