On April 29th, 2020, the Central Bank of Nigeria (CBN) published a press release titled “CBN resumes FX sales for SMEs, School Fees.” Recall that the apex bank had initially suspended most of its activities at the FX market on the back of the COVID-19 lockdown. The temporary suspension had spurred heavy demand to the parallel market where naira was being quoted at N460/$ (vs. N386.5/$ at the I&E window). Thus, with lockdown expected to be eased in the following week, the apex bank seems to be gradually restoring activities at the FX market.
In the publication, the CBN noted that it had resumed the provision of FX to all commercial
banks for onward sales to parents wishing to pay schools fees and SMEs wishing to make essential imports needed to revamp economic activities across the country. Also, the CBN noted that it would be resuming its weekly wholesale intervention funding sales (of over $100mn) as well as FX sales to the Bureau De Change (for business travels, personal travels, and other designated retail uses, as soon as international flights resume).
Overall, we believe the reopening of CBN’s activities at the FX market will restore some stability back to the market. Also, the recent IMF loan ($3.5bn) should help in shoring up the reserves, providing the CBN with additional firepower to defend the naira as FX market activities resume. Yet, we continue to see the reason for a complete harmonization of FX windows as the CBN noted that it had ramped up its surveillance of the foreign exchange markets for speculators, smugglers and other illegal users – a cost that may not be necessary or negligible, in an environment where FX rate is harmonized.
United Capital Research