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Kenyan Shilling Drops to Five-Month Low on Rate-Cut Speculation

Kenya’s shilling declined to the weakest level in almost five months on speculation the central bank will cut interest rates at its monetary policy committee meeting next week.

The currency of East Africa’s largest economy depreciated as much as 0.3 percent to 85.60 per dollar and was trading 0.2 percent weaker at 85.48 a dollar by 4:02 p.m. in Nairobi, the weakest level since June 6, according to data compiled by Bloomberg. The shilling is down 0.4 percent in the past five days, a second week of declines.

“The markets are adjusting their position in anticipation of a rate cut at the MPC meeting next week following the drop in inflation,” Jeremiah Kendagor, head of trading at Nairobi-based Kenya Commercial Bank Ltd., said by phone.

Kenyan inflation slowed for the 11th consecutive month in October, declining to 4.1 percent from 5.3 percent in September, the Kenya National Bureau of Statistics said on Oct 31. Kenyan policy makers have cut the key lending rate twice in the second half of the year, to 13 percent, and are under pressure to make more reductions to help stimulate growth.

“With lower inflation figures there is expectation of a rate cut and we predict they will lower it by 100 basis points,” Duncan Kinuthia, head of trading at Commercial Bank of Africa Ltd., said by phone.

The economy expanded 3.3 percent in the second quarter, the slowest pace since the final three months of 2009, as tea and flower exports slumped and tourism declined, eroding foreign-exchange income from the country’s two biggest sources.

The shilling is expected to weaken to a range of 88 to 90 per dollar by year-end as the balance of trade worsens, Nairobi-based Sterling Capital Ltd. said in a note on Oct 19.

The Tanzanian shilling weakened 0.2 percent to 1,598 a dollar, while Uganda’s shilling retreated 0.2 percent to 2,580 a dollar.

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