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Kenya Shilling Weakens for Fifth Day on Rate-Cut Speculation

Jan. 10 (Bloomberg) -- Kenya’s shilling weakened for a fifth day, its longest losing streak in more than four months, as importers bought more dollars amid speculation the central bank will cut its benchmark interest rate today.

The currency of East Africa’s biggest economy depreciated 0.1 percent to 86.70 a dollar by 1:12 p.m. in Nairobi, the capital. The shilling has retreated 0.5 percent in the past five days, according to data compiled by Bloomberg.

The Monetary Policy Committee, led by central bank Governor Njuguna Ndung’u, will reduce the benchmark interest rate to 10 percent from 11 percent, according to four of six economists polled in a Bloomberg News survey. One analyst predicted the rate will stay unchanged while the other forecast a reduction to 9 percent. The Nairobi-based bank is expected to announce its decision later today.

“The shilling is under pressure as importers bought dollars in anticipation of an interest rate cut,” Nairobi-based NIC Bank Ltd. said in a note to its clients. “Lower interest rates normally make it easier for importers to access credit, driving up demand for dollars that in turn puts pressure on the shilling.”

The regulator lowered the benchmark interest rate by 2 percentage points to 11 percent when it last convened on Nov. 7. Inflation slowed for a 13th straight month to 3.2 percent in December, below the government’s target of 5 percent, the Kenya Bureau of Statistics said Dec. 28.

Economic Growth

“There is a likelihood of a moderate cut on the central bank rate as they seek to strike a balance between spurring economic growth through growth in private sector lending and ensuring they don’t put more pressure on the shilling,” Duncan Kinuthia, the head of trading at Commercial Bank of Africa Ltd., said by phone from Nairobi. The shilling has weakened 0.7 percent since the beginning of the year, according to data compiled by Bloomberg.

The country’s monetary authority has lowered its lending rate by 7 percentage points since July to stimulate growth. The economy 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 offered 2 billion shillings ($23 million) of seven-day repurchase agreements, a bank official who asked not to be identified in line with policy, said by phone today.

The Ugandan shilling was unchanged at 2,705 a dollar, while Tanzania’s shilling weakened 0.9 percent to 1,608 a dollar.

To contact the reporter on this story: Johnstone Ole Turana in Nairobi at jturana@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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