May 7 (Bloomberg) -- Kenya’s shilling headed for the biggest drop in two months as speculators increased demand for dollars on expectations that the central bank will cut its benchmark interest rate.
The currency of East Africa’s biggest economy weakened as much as 1.5 percent and traded 0.3 percent lower at 83.94 per dollar by 2:35 p.m. in the capital, Nairobi, the most on a closing basis since March 6.
Kenya’s Monetary Policy Committee, led by central bank Governor Njuguna Ndung’u, will probably reduce the benchmark interest rate by 25 basis points to 9.25 percent, according to the median estimate of eight economists surveyed by Bloomberg. Four predict the rate will stay unchanged, while forecasts for a cut range from 50 basis points to 100 basis points.
The MPC left the key lending rate unchanged at 9.5 percent at the last meeting in March.
“When the rate is cut for economic growth, businesses borrow shillings, but use them to buy dollars to import goods, since we are a net importer,” Duncan Kinuthia, head of trading at Nairobi-based Commercial Bank of Africa Ltd., said by phone. “There has also been some build up in corporate demand for dollars.”
Uganda’s shilling depreciated 0.2 percent at 2,559 per dollar. Tanzania’s shilling weakened as much as 0.2 percent before trading unchanged at 1,628 per dollar.
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