In a recent projection, JP Morgan has forecasted that the Nigerian naira may trade at N850 per US dollar at the Investors’ and Exporters’ Forex window before the end of 2023. This prediction comes as a significant development in the ongoing debate about Nigeria’s exchange rate stability and economic measures.
JP Morgan emphasized that the recent efforts to restore a flexible foreign exchange (FX) regime in Nigeria might continue, provided there is a willingness to accompany it with tighter monetary conditions. The interbank FX rate has recently risen to over 900 naira per dollar, up from 750 naira, thereby closing the gap with the parallel market rate, which is just above 1,000 naira.
The financial services firm outlined its expectations, 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 attracts some foreign capital.”
JP Morgan also proposed additional measures that Nigerian authorities could consider to stabilize the FX market. These measures include enforcing regulatory limits on FX net open positions for commercial banks, introducing a cash reserve ratio on FX deposits, and issuing dollar-denominated assets within the country. On the fiscal side, JP Morgan advised the government to mandate all taxes to be paid in local currency.
Furthermore, the financial institution urged oil exporting companies to sell their foreign exchange proceeds on the interbank market, rather than directly to the Central Bank of Nigeria. JP Morgan pointed out that the willing buyer-willing seller model of the foreign exchange market contributes to extreme volatility, affecting price discovery.
Regarding Nigeria’s plan to secure $10 billion in foreign currency inflows in the coming weeks to improve liquidity in the FX market, JP Morgan expressed reservations. The firm noted that raising such a substantial amount could be challenging, citing delays in the expected $3 billion from Afrexim and a historical shortfall in dividends from Nigeria LNG Limited.
Aminu Gwadabe, the President of the Association of Bureau de Change Operators of Nigeria, has also weighed in on the forex issue. He called on the Federal Government to consider securitizing domestic remittances as part of the planned new forex regulations, suggesting alternative measures to address the ongoing currency challenges in the country.
These recommendations and projections from JP Morgan highlight the need for a comprehensive and sustainable approach to Nigeria’s foreign exchange market, as the government continues its efforts to stabilize the naira and attract foreign investment. The government and financial authorities may consider these suggestions as they work towards achieving greater FX stability and economic growth.