Two days ago, the Central Bank of Nigeria (CBN), in a note issued to Bureau De Change operators (BDCs) in the country, suspended the sales of foreign currency for two weeks.
This follows the request made by the Association of Bureau De Change Operators of Nigeria (ABCON) for the CBN to grant them a two-week holiday as a measure to control the spread of the Coronavirus outbreak which is fast spreading in the country with 14 new cases confirmed yesterday taking the number of confirmed cases to 65 cases. The suspension is effective from tomorrow, 27 March 2020.
However, this does not affect dollar transactions in the Investors & Exporters (I&E) window. Thus, portfolio investors, as well as businesses that still require FX for foreign transactions settlement, can access the I&E window. Several businesses currently operate minimal activities as major commercial hubs maintain restrictions in a bid to control the spread of COVID-19.
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In addition, we expect retail demand for FX will be minimal as travel restrictions remain. That said, we expect the 2-week holiday to shift the demand for FX to the parallel market. Thus we expect an upward pressure in parallel market rates.
On the flip side, we think the 2-week break would help the CBN conserve scarce dollar resources, particularly in the face of sustained pressure in the I&E window owing to rising capital outflows. We note the CBN intervention in the I&E window jumped to a record high in March, as global risk aversion for EM/FM assets made FPIs cut their exposure to Nigerian assets.
According to data from FMDQ, CBN’s FX intervention in the I&E window climbed to a historic 81.7% (US$2.9bn) with inflows from FPIs at 5.9% (US$0.2bn).
READ MORE: CBN reacts to exchange rate policy change, says Naira not “floated”
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