The naira traded at the lower end of its range against the British pound sterling, edging lower ahead of a Bank of England (BoE) interest rate decision as traders project that the British apex bank will likely hold rates steady but possibly release a dovish statement.
A relaxed outlook, prompted by declining UK inflation and unimpressive economic data, has contributed to the pound’s 1.5% decline versus the US dollar this year. Investors now anticipate that the BoE will lower rates earlier and more quickly than the Federal Reserve when it makes its most recent announcement on rates on Thursday.
The Naira’s declining fortunes continued with further depreciation against major currencies in both the Nigerian official and parallel markets, partly due to intensified speculation, hoarding, and late disbursement of FX to BDC operators
The British pound sterling sold at N1,752 against the naira on the black market despite improved market conditions in the official market.
BDC operators complained about the CBN’s late disbursement, which requires three to four weeks after payment before the dollars are distributed to them. Some Bureau De Change operators allegedly withdrew from the CBN’s dollar sales program.
Although it has depreciated from its peak of N2414 against the British pound in February, the value of the Nigerian Naira has gained back almost N250 since then.
While most people anticipate that the BoE will maintain rates at 5.25 percent, the market expects a dovish guidance today. In February, the bank released its inflation estimates, indicating that markets were pricing in around five cuts by 2024 and that inflation would return to its goal in 2.5 years.
Global money markets are pricing in an almost 95% probability, according to LSEG data, noting that the Bank of England will maintain its benchmark interest rate at 5.25%, the highest level since 2008. Members of the BoE’s Monetary Policy Council are projected to vote 8-1 to keep the bank rate on hold for the second time in a row.
However, investors are searching for clues as to when the first interest rate hike will occur amid a moderation in the UK’s headline inflation rate.
The European Central Bank has already signaled that it will lower borrowing costs in June, so markets now anticipate a 56% likelihood of such a move in June and a greater chance of a 72% BoE rate cut in August.
The UK currency decreased by 0.06% against the euro, hovering near a two-week low set on Wednesday.
Prime Minister Rishi Sunak would welcome interest rate reductions ahead of this year’s anticipated election. Although he has assured supporters that the economy is improving, he is trailing the opposition Labour Party in opinion polls.