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Kenya Shilling Weakens 4th Week on Pre-Election Dollar Demand

Kenya’s shilling declined, heading for a fourth week of losses, as businesses sought to accumulate dollars ahead of elections in March.

The currency of East Africa’s biggest economy depreciated 0.3 percent to 87 a dollar as of 1:06 p.m. in Nairobi, the capital, according to data compiled by Bloomberg. The shilling is down 1.1 percent this year.

The elections will be the first since a disputed 2007 vote sparked two months of violence in which more than 1,100 people died. The shilling is likely to weaken in the run-up to the ballots, Morgan Stanley said in a report on Jan. 14. The currency is expected to retreat to 87.50 to 88 per dollar levels by election time, Jeremiah Kendagor, head of trading at Nairobi-based Kenya Commercial Bank Ltd., said today.

“The shilling is under pressure from increased dollar demand by businesses which are looking at covering their positions ahead of the elections,” Kendagor said by telephone.

The currency may receive support from the central bank “to prevent it from weakening drastically,” Nairobi-based NIC Bank Ltd. said in a note today. The currency will trade in the 87 a dollar range, the bank said.

The Central Bank of Kenya has been removing money supply from the market using repurchase agreements and term auction deposits. The bank has sold dollars on three occasions since the start of the year to support the shilling, according to data compiled by Bloomberg. The bank offered 5 billion shillings ($57 million) of seven-day repurchase agreements today, an official who asked not to be identified in line with policy, said by phone.

The Ugandan shilling weakened 0.2 percent to 2,665 a dollar, while Tanzania’s shilling traded unchanged at 1,600 a dollar.

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