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Kenya Shilling Rises for Second Day on Rate-Increase Expectation

Nov. 1 (Bloomberg) -- Kenya’s shilling appreciated for a second day against the dollar on speculation the central bank will raise its benchmark rate today to curb inflation.

The currency of East Africa’s biggest economy advanced as much as 0.3 percent to 98.95 per dollar and traded less than 0.1 percent up at 99.18 by 10:45 a.m. in Nairobi from yesterday’s close of 99.20.

The Central Bank of Kenya is expected to increase the benchmark rate to a record 12.5 percent, according to the median estimate of six economists surveyed by Bloomberg.

“The shilling has strengthened as the markets are expecting a rate hike as part of the ongoing monetary tightening policy by the central bank,” Chris Muiga, a dealer at Nairobi-based Kenya Commercial Bank Ltd., said by phone.

Kenya’s shilling plunged 19 percent against the dollar this year and is the world’s worst-performing currency, according to data compiled by Bloomberg. Inflation accelerated to 18.9 percent in October from 17.3 percent in September, the Kenya National Bureau of Statistics said on Oct. 28. The central bank reduced commercial lenders’ foreign-exchange exposure limits to 10 percent from 20 percent to stem shilling volatility.

Surging inflation poses a threat to economic growth and must be “resolutely” addressed, Domenico Fanizza, head of the International Monetary Fund team that visited Nairobi from Oct. 13, said at a briefing yesterday.

“Monetary policy will be tightened to bring down the rate of expansion of credit to the private sector to levels that can be sustained and reduce demand for foreign exchange,” Fanizza said.

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