JP Morgan predicts N600/$1 in coming months

An American financial firm, JP Morgan has predicted that the Naira will settle in the “high 600s” in the coming months.

The financial institution made the prediction via a statement in the wake of the unification of all segments of the forex exchange (FX) market by the Central Bank of Nigeria.

“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.”

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.”