Bloomberg News

Kenya’s Shilling Weakens Before Central Bank Rate Decision

December 01, 2011

Dec. 1 (Bloomberg) -- Kenya’s shilling, the world’s best- performing currency last month, weakened against the dollar ahead of a meeting by the central bank’s Monetary Policy Committee that is expected to leave interest rates unchanged.

The currency of East Africa’s biggest economy fell 0.2 percent to 89.65 per dollar at 9:31 a.m. in Nairobi, the capital. It closed at 89.48 yesterday. Uganda’s shilling advanced for a fourth day, gaining 0.4 percent to 2,554, while Tanzania’s currency weakened 0.1 percent to 1,687.35.

Kenya’s MPC will leave the policy rate at 16.5 percent, according to seven of the 10 economists surveyed by Bloomberg. The rest expect a rate increase of between a quarter and 1 percentage point.

Policy makers in Kenya may have room to halt rate increases after the shilling gained 12 percent against the dollar since Oct. 1, partly reversing its 19 percent slump in the first nine months of the year. That may ease price pressures in the economy in the months ahead after drought boosted food costs this year.

Inflation accelerated to 19.7 percent in November from 18.9 percent in the previous month, the statistics agency said yesterday. That’s more than double the 9 percent target set by the government for the fiscal year through June 2012.

Central Bank of Kenya Governor Njuguna Ndung’u said on Nov. 25 the bank will keep a “tight” monetary policy stance until price pressures ease. The bank’s main priority is to “bring inflation and inflationary expectations under control,” while trying at the same time to bolster economic growth, the governor said.

Higher interest rates have boosted government borrowing costs. The average yield on the 91-day Treasury bill climbed to 16.6 percent at the last sale on Nov. 24, the highest level in more than 11 years, compared with 9 percent in July, according to central bank data.

--Editors: Hilton Shone, Stephen Kirkland

To contact the reporter on this story: Paul Richardson in Nairobi at pmrichardson@bloomberg.net.

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


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