CEM REPORT, FINANCE | To further ease liquidity in the foreign exchange FX, market Nigeria plans to obtain $10 billion in FX inflows in the next few weeks.
While this is a move that could ease tension in various sectors of the economy, a recent report has said the acquisition of the fund may be challenging, advising the nation’s monetary policymakers to explore other options.
According to JP Morgan Chase & Co. in a report titled Nigeria Local Markets Strategy: Getting Set for Re-Opening, the expected fund may be stalled given the $3 billion expected from Afrexim has been delayed for months.
JP Morgan advised Nigeria’s monetary policymakers to consider further measures such as requiring commercial banks to adhere to regulatory limits on FX net open positions, exploring the introduction of a cash reserve ratio (CRR) on FX deposits as well as 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
JP Morgan in the report warned against a further rise in interest rates which it believes will increase the interest burden adding that “higher interest rates will also come at a cost to the central bank, a cost which will eventually be absorbed by the federal government”.
It added that the removal of the limit on remunerable deposits at the central bank needs to be complemented with a symmetric corridor around the policy rate.
JP Morgan in the report stated that although an official announcement has been made yet it believes that the CBN may have removed the ₦2 billion per bank limit on remunerable funds placed at its deposit window, the Standing Deposit Facility (SDF).
“While this is a significant step in the right direction, we suspect the SDF will once again become less relevant if the CBN issues more frequent OMOs at an elevated rate and given the asymmetry of the corridor around the policy rate,” according to JP Morgan Chase & Co.