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Naira experiences slight depreciation amid U.S. dollar recovery
The Nigerian Naira experienced a minor decline against the U.S. dollar at the official foreign exchange market on Wednesday
The depreciation comes as the U.S. dollar index showed signs of recovery following a sell-off earlier in the week.
At the official foreign currency exchange window, the Naira was valued at N1,631.17 per U.S. dollar, reflecting ongoing pressure on Nigeria’s foreign exchange system.
This situation is largely attributed to a combination of high money supply and significant government budget deficits, which continue to challenge the stability of the Naira.
Recent data from the Central Bank of Nigeria (CBN) indicates that the country’s money supply, commonly referred to as M3, rose to N109 trillion in September 2024. This figure represents a substantial annual growth rate of 62.8%, up from N66.94 trillion in September 2023
In an effort to bolster the local economy and mitigate foreign exchange risks, the CBN has entered into a strategic partnership with the International Finance Corporation (IFC). This collaboration aims to enhance access to local currency loans for Nigerian businesses, with the IFC planning to increase its investment in the country significantly, targeting over $1 billion in the coming years.
The partnership is expected to focus on managing foreign exchange risks while expanding naira investments across various sectors, including small and medium-sized enterprises, the creative industry, infrastructure, housing, agriculture, and energy.
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The statement from the IFC emphasized the need for local currency financing in many of these sectors, highlighting that this partnership with the central bank is crucial for expanding access to necessary financial resources.
Meanwhile, the U.S. dollar index (DXY) has rebounded after experiencing a drop due to mixed economic reports released the previous day.
The dollar index, which measures the value of the U.S. dollar against a basket of six other currencies, had initially fallen after the September ADP Employment Change report revealed a surprising increase of 233,000 jobs in October. This data alleviated some of the dollar’s losses, despite a negative revision of the third-quarter GDP growth rate.
While the U.S. GDP grew at a rate of 2.8% in Q3—better than many other economies—it fell short of market expectations. As investors prepare for the forthcoming Nonfarm Payrolls (NFP) report on Friday, which is anticipated to provide further insights into the labor market, the dollar index has seen a slight uptick of 0.15%, now standing at 104.02.
In the broader context, two key currencies in the basket, the Euro and the British pound sterling, have also shown a slight decline, trading at $1.0871 and $1.2953, respectively.