Resumption of International Flight to Herald FX Sales to BDCs
Analysts at United Capital have noted that resumption of international flight is likely to herald foreign exchange sales to the Bureau De Change (BDCs).
Nigeria’s central bank had halted sales of foreign currencies to BDCs during immediately after the outbreak of covid-19.
Following the global economic lockdown, international flight was halted to curb movement of people from one country to another.
Now, due to gradual easing of economic lockdown, many countries have started opening up their airspace to allow movements across the world.
It would be recalled the outbreak of COVID-19 in Nigeria prompted the government to halt non-essential international travels.
However, United Capital stated that beyond the aviation sector, this has to a large extent affected developments in the currency market.
The Central Bank of Nigeria (CBN) had suspended FX sales to Bureau De Changes (BDCs) since Q2-2020 – its biggest intervention window – considering restrictions on international travels, but mainly as an effective measure to managing speculative attacks on the local currency.
Also, United Capital stated that the CBN halted sales to the Investors and Exporters window (its second largest intervention window) since April-2020 in a bid to manage the pressure on FX reserves.
“Certainly, the combined impact of these control measures is reflected at the parallel/unofficial market (currently ₦473.5/$) which has since diverged from the I&E rates (currently ₦386.0/$) as FX liquidity thinned out at the I&E and BDC segment”, United Capital explained.
Given that the CBN premise for halting sales to BDCs remains the ban on international travels.
Analysts at United Capital said they believe that the recent announcement by the Minister of Aviation, Hadi Sirika, that international flights would commence operation in Abuja and Lagos on the 29th of August 2020 is likely to herald the resumption of FX sales to BDCs, going forward.
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Accordingly, the investment firm stated that the CBN FX reserves, which currently stands at $35.6 billion is expected to be tested on all sides in H2-2020.
Especially, as external funding from the World Bank of about $1.5 billion remains outstanding.
Analysts stated that the convergence of rates in the parallel and official market will remain a function of the size of liquidity the CBN would be willing to commit to the market when international flights resumes, the pace of recovery in the global economy and uptick in oil prices.
Resumption of International Flight to Herald FX Sales to BDCs
