JP Morgan, a global financial services company headquartered in the United States, announced on Wednesday that it foresees the naira reaching a value of ₦850/$ at the Investors’ and Exporters’ Forex window by December 2023.
The US bank suggested that the ongoing efforts to uphold a flexible FX regime could be sustained if coupled with a commitment to implementing more stringent monetary measures.
‘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 asserted.
JP Morgan also suggested that, alongside the policy actions, authorities might need to contemplate additional measures, including the imposition of regulatory limits on FX net open positions for commercial banks.
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JP Morgan recommended considering other measures, such as exploring the implementation of a cash reserve ratio on FX deposits and the issuance of onshore dollar assets.
Regarding fiscal matters, the financial services firm advised the government to implement the requirement for all taxes to be paid in local currency.
It further noted that some of these measures might have already been integrated into the Federal Government’s upcoming revision of guidelines pertaining to the forex market’s operations.
It advised oil exporting companies to consider selling forex proceeds on the interbank market rather than directly to the Central Bank of Nigeria, according to JP Morgan.
The company also observed that the voluntary nature of the foreign exchange market is adding to the high volatility in the FX market.
It emphasized that the willing buyer-willing-seller model was impeding price discovery, urging the financial regulator to reconsider the strategy.