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JP Morgan, a prominent US multinational financial services firm, has projected that the Nigerian naira will trade at N850 per US dollar at the Investors’ and Exporters’ Forex window before the conclusion of 2023.
The US bank also suggested that the recent efforts to restore a flexible foreign exchange (FX) regime in Nigeria may be sustained, primarily due to the willingness to accompany it with tighter monetary conditions.
The bank noted that the interbank FX rate has recently risen to over 900 from 750, significantly closing the gap with the parallel rate, which is now slightly above 1,000.
JP Morgan expects the USD/NGN exchange rate to gradually move lower towards 850 by year-end. They attribute this to a combination of tighter policies, more attractive rates, and FX levels, which could discourage further dollarization and possibly attract foreign capital.
In addition to these policy actions, JP Morgan suggested that authorities might consider additional 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 onshore.
On the fiscal side, the financial services firm recommended that the government mandate all taxes to be paid in the local currency.
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 nature of the foreign exchange market contributes to extreme volatility and impeded price discovery. They advised the financial regulator to reconsider this approach.
JP Morgan also commented on Nigeria’s plan to attract $10 billion in foreign currency inflows in the coming weeks to alleviate liquidity issues in the forex market. They mentioned that raising such an amount might be challenging, given the delays in the expected $3 billion from Afrexim and the shortfall in historical dividends from Nigeria LNG Limited.
Meanwhile, Aminu Gwadabe, the President of the Association of Bureau de Change Operators of Nigeria, proposed the securitization of domestic remittances as part of the planned new forex rules. He commended the government’s plan to address the forex crisis by establishing a single exchange market and suggested focusing on diaspora remittances, which could be around $20 billion annually, as a stable source of forex inflow for Bureau de Change operations.
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