The currency of East Africa’s biggest economy depreciated as much as 0.2 percent to 86.50 a dollar and traded at 86.45 by 11:10 a.m. in Nairobi, the capital. A close at this level would be the weakest since May 30, according to data compiled by Bloomberg.
The bank’s Monetary Policy Committee, led by Governor Njuguna Ndung’u, lowered the benchmark interest rate by 2 percentage points to 11 percent on Nov 7. Inflation slowed for the 13th consecutive month in December, to 3.2 percent from 3.3 percent in November, slipping further below the government’s target and boosting expectations the central bank will continue to ease monetary policy. The policy makers will meet on Jan 10, the bank said on its website.
“The shilling is under pressure due to an anticipated rate cut decision by Monetary Policy Committee and it’s anticipated it could hit 87.00 before Jan. 10,” Nairobi-based NIC Bank Ltd., said in a note to client. There is “corporate client demand for greenbacks built up over the holiday period,” it said.
The central bank has lowered its key lending rate by a total of 7 percentage points since July, a move designed to revive the economy after growth slowed to 3.4 percent in the first quarter and 3.3 percent in the second. Expansion quickened to 4.7 percent in the third quarter.
The central bank rate is seen at 10 percent this year, according to the median of four economists’ forecasts surveyed by Bloomberg in November.
“We don’t expect an aggressive reduction with the possibility of a cut of 100 basis points to ensure the shilling remains stable,” Bernard Matimu, chief dealer at NIC Bank, said by phone.
The Ugandan shilling weakened 0.8 percent to 2,700 a dollar, while Tanzania’s shilling depreciated 0.3 percent to 1,594 a dollar.
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