Kenya Shilling Weakens Versus Dollar, Set for Third Yearly Loss

Kenya’s shilling weakened and headed for its third straight yearly loss against the dollar, as inflation stayed below target and raised expectations of deeper interest-rate cuts.

The currency of East Africa’s largest economy declined less than 0.1 percent to 86.10 a dollar by 12:08 p.m. in Nairobi, the capital. A close at that level would mark a 1.2 percent depreciation in 2012 and the lowest year-end close since at least 1989, when Bloomberg began tracking the data. The shilling weakened 5.4 percent last year and 6.5 percent in 2010, according to data compiled by Bloomberg.

Policy makers have cut Kenya’s benchmark interest rate three times since July to stimulate consumption after economic growth slowed in the first and second quarters.

Slowing inflation gave the central bank scope cut borrowing costs by 7 percentage points to 11 percent and may allow for a further reduction at the next Monetary Policy Committee meeting on Jan. 10, Duncan Kinuthia, chief dealer at Nairobi-based Commercial Bank of Africa Ltd., said by phone.

“We’ve seen an improvement in the stability of the shilling this year compared to previous years,” he said. The “moderate” weakness in the shilling in 2012 coincided “with interest rate being lowered gradually and a huge current account deficit,” he said.

While Kenya has set 5 percent as its inflation target for 2012-2013, growth in consumer prices slowed to 3.2 percent in December from 3.3 percent a month earlier, the Kenya National Bureau of Statistics said on Dec. 28.

Kenya’s current-account deficit widened by 35.3 percent to $4.3 billion in the year to September 2012 from $3.2 billion a year ago, as imports jumped 10.1 percent and exports climbed 2.9 percent, the central bank said on its website on Dec. 6.

Uganda’s shilling weakened for a second day, falling less than 0.1 percent to 2,685 a dollar, while the Tanzanian currency gained less than 0.1 percent to 1,582.50.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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