JP Morgan, an American multinational financial services
firm, says the naira is expected to appreciate, and trade at about N600 to the
dollar in the coming months.
The financial institution made the projection in a statement
on Thursday.
On Wednesday, the Central Bank of Nigeria announced the
unification of all segments of the forex exchange (FX) market, signalling that
the exchange rate will now be decided by market forces.
The apex bank’s new policy followed a declaration by
President Bolu Tinubu that the “monetary policy needs thorough house cleaning.
The Central Bank must work towards a unified exchange rate”.
On Wednesday that the naira, during trading hours, sold for
between N750 and N755 per dollar before appreciating to close at N664.04.
Analysing the naira float, JP Morgan said although it would
take a few days for the dollar/naira spot to stabilise, it fully anticipates an
initial overshoot towards the parallel market rate of below 750 or higher.
“While it will take a few days for USD/NGN spot to settle,
we fully expect an initial overshoot towards the parallel market rate of -750
or higher, after which, we expect USD/NGN to settle in the high 600s over [the]
coming months,” the statement reads.
“We remain long
USD/NGN via non-deliverable forwards (NDFs) as well as OW emerging markets bond
index global diversified (EMBIGD) index as we expect further positive catalysts
to materialise in the near-term.
“We believe there is room for incremental positive surprises
with respect to reform depth and execution speed. We had high expectations for
the new administrations reform agenda, however, the speed of execution has
proven to be a positive surprise.”
‘HIGH PETROL PRICE
COULD SPIKE HEADLINE INFLATION TO 20%’
Meanwhile, President Bola Tinubu had pronounced that the
petrol subsidy payments had stopped, while delivering his his inaugural speech
on May 29.
The Nigerian National Petroleum Company (NNPC) Limited
immediately adjusted the pump price across its retail outlets nationwide.
JP Morgan said the surge in the country’s petrol price could
culminate in a headline inflation increase from 22.41 percent in May 2023, to
the 25 percent mark in June 2023.
“The near tripling of fuel prices could see headline
inflation jump closer to the 25 percent mark in June and remain firmly above
20% for the rest of the year,” the bank said.
“However, fuel subsidies accounted for 1.7 percent of GDP in
2022 and a complete removal will be positive for the fiscal accounts, although
we expect that some portion of the savings will be targeted towards social
spending.
“Of course, a weaker
exchange rate means the government would receive higher naira revenues from oil
and gas exports.
“We believe the devaluing of the naira yesterday could have
a more limited impact on headline inflation given a substantial part of the
informal economy accessed dollars at the much higher parallel market rate.”
According to JP Morgan, the new policies on both FX and
petrol prices will need “some ironing out once a cabinet is announced, we
believe there is room for more near-term reform execution surprises”.
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Nigeria exchange rate at 600 naira to 1$ is too high for Nigeria economy to support. This must be brought to 5 naira to 1$ if Nigeria wants to have manageable economy. He must dedollarise his financial institutions and make it obligatory to trade in naira with his partners. Nigeria can not be suffering at the expense of the United State. He can not be paying his total internal debt when Nigeria is in difficulties. Nigeria must be bold to reform his finances. They must trade in naira instead of dollar. Nigeria naira is a legal tender which must be respected. Where’s nigeria sovereignty if we can trade with our currency. Nigeria is not US, we have our currency naira to trade with our partners. Does America trade in naira? Why must Nigeria be tied to the dollar. It’s absurd. Many countries are saving their economy from dollar dependent like:- Saudi Arabia, India, China, Russia, South Africa, Brasil, Argentina, Iran, Kenya etc etc , why must Nigeria continue to ruin his economy by accepting the dollar dominance in their trade.
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