Bloomberg News

Kenya Shilling Weakens for Fifth Day on Lower Inflation Bets

March 01, 2012

Kenya’s shilling weakened for a fifth day, the longest losing streak in more than five months, on speculation slowing inflation will enable the central bank to reduce interest rates.

The currency of East Africa’s biggest economy depreciated 0.3 percent to 83.28 per dollar by 2:56 p.m. in Nairobi, the capital, for the longest run of declines since September.

Inflation (KNPRIYY) slowed for a third straight month in February, offering the central bank flexibility to lower its key lending rate from a record high. The inflation rate declined to 16.7 percent in February from 18.3 percent in January, the Kenya National Bureau of Statistics said yesterday. The bank raised interest rates six times last year to curb price increases and support the currency.

“Given that the deceleration of inflation was sharper than expected, we now think the central bank will start its cutting cycle sooner than our initial expectation of second quarter 2012,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, wrote in a report today.

The Ugandan shilling weakened for a second day, sliding 0.5 percent to 2,392 per dollar, after the central bank cut its benchmark interest rate for a second consecutive month.

The policy rate was lowered to 21 percent, Governor Emmanuel Tumusiime-Mutebile told reporters today in the capital, Kampala. The central bank raised the rate by 10 percentage points between July and November.

“Uganda is likely to see further monetary policy easing in the upcoming months,” Absa Capital strategists led by Johannesburg-based Ridle Markus wrote in a note to clients.

Tanzania’s shilling strengthened 0.3 percent to 1,595 per dollar.

To contact the reporter on this story: Chris Kay in Abuja at ckay5@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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