However, the US bank said the recent efforts to restore a flexible FX regime may be sustained given the willingness to accompany it with tighter monetary conditions.
“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.
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“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.
In addition to the policy actions, JP Morgan averred that authorities may need to consider further measures such as requiring commercial banks to adhere to regulatory limits on FX net open positions.
Other measures, JP Morgan said, include exploring the introduction of a cash reserve ratio on FX deposits as well as the issuance of dollar assets onshore.
On the fiscal side, the financial services firm advised the government to require all taxes to be paid in local currency.
It added that some of the measures may have already been incorporated in the Federal Government’s forthcoming revision of guidelines relating to the operations of the forex market.
JP Morgan also urged oil exporting companies to consider selling forex proceeds on the interbank market, rather than directly to the Central Bank of Nigeria.
The company also said the willing buyer-willing-seller nature of the foreign exchange market is contributing to the extreme volatility in the FX market.
It said the willing buyer-willing-seller model impeded price discovery, so the financial regulator should reconsider the strategy.
The bank also commented on Nigeria’s plan to obtain $10bn in foreign currency inflows in the next few weeks to ease liquidity in the foreign exchange market.
It added that the ability of the government to raise such an amount may be challenging given the “US$3bn expected from Afrexim has been delayed for months, while Nigeria LNG Limited’s historical dividends to the government have fallen well short of US$2bn annually”.
Meanwhile, the President of the Association of Bureau de Change Operators of Nigeria, Aminu Gwadabe, had called on the Federal Government to consider the securitisation of domestic remittances as part of the planned new forex rules.
In an exclusive interview with The PUNCH, he commended the plan by the Federal Government to address the forex crisis by operating a single exchange market.
He said, “The plan by the Federal Government to address the forex crisis is a good one and will yield results. Of course, it is going to add value to the local currency. We are only waiting to see how it would be implemented, especially on confidence-building measures.
“However, I think instead of securitising inflows from NLNG, they should look towards securitising diaspora remittances for Bureau de Change. It has been done in Malaysia, Lebanon, China, South Africa and other countries.
“We have to scrutinise diaspora remittances. It is stable and heavy. We should leave energy proceeds; the government should focus on remittances from the diaspora. It is about $20bn annually compared to that of NLNG that is from our future revenue of 14 years.”
He urged the government to use the Bureau de Change as a vehicle to implement that.
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