Kenyan Shilling Weakens as Central Bank Expected to Retain Rate
Kenya’s shilling weakened for the sixth day in seven against the dollar on speculation the central bank will maintain the benchmark interest rate at a policy meeting tomorrow.
The currency of East Africa’s biggest economy weakened as much as 0.3 percent and was trading 0.1 percent lower at 83.20 to the dollar at 12:34 p.m. It was unchanged on March 2.
“The shilling weakening streak is on the expectation that the central bank has ended its recent tightening policy stance as inflation continues to fall,” Duncan Kinuthia, a dealer at Nairobi-based Commercial Bank of Africa Ltd., said in a phone interview today. “The drive to support the shilling is over and the central bank is leaving it to the market forces.”
The central bank left its benchmark interest rate unchanged at a record 18 percent at two policy meetings this year, after six increases in 2011 that eased credit demand and helped the shilling rebound from a record low of 106 on Oct. 11. The currency has gained 27 percent since that date, the best performance among all currencies tracked by Bloomberg.
The inflation rate declined for a third month to 16.69 percent in February from 18.3 percent in January, the Nairobi- based Kenya National Bureau of Statistics said in an e-mailed statement on Feb 29.
The Ugandan shilling depreciated, heading for the biggest one-day drop in eight years, on high demand for the dollar amid reduced inflows as the coffee season ends.
The currency of East Africa’s third-biggest economy slumped 4.2 percent to 2,568 per dollar, by 12:22 p.m. in the capital, Kampala. A close at that level would be the lowest since Nov. 29 and mark the biggest one-day drop since Feb. 18, 2004, according to data compiled by Bloomberg.
“There is panic buying by the manufacturing sector and in the interbank market due to low inflows which has put pressure on the shilling,” Taib Lubega, a trader at Stanbic Bank Uganda Ltd., said in a phone interview from Nairobi. “The central bank has sold limited amount which has had no effect on the shilling and unless they sell a substantial amount the shilling is bound to weaken further.”
Tanzania’s shilling appreciated the most in over two weeks, gaining 0.4 percent to 1,594 per dollar at 11:23 a.m.
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