Bloomberg News

Kenya Shilling Snaps Three-Day Rally in Anticipation of Rate Cut

July 04, 2012

Kenya’s shilling snapped a three day rally as businesses sought to accumulate dollars at favorable levels on anticipation of a rate cut tomorrow, taking advantage of the currency’s gain since May 30.

The currency of East Africa’s largest economy weakened less than 0.1 percent to 83.97 per dollar by 2:03 p.m. in Nairobi. The shilling has strengthened 3.2 percent since May 30, according to data compiled by Bloomberg.

“There has been decent dollar demand from businesses taking advantage of the recent gains as they seek to accumulate in anticipation a rate cut may increase pressure on the shillings,” Jeremiah Kendagor, the head of trading at Nairobi- based Kenya Commercial Bank Ltd. (KNCB), said by phone today.

The monetary policy committee, which raised the benchmark interest rate to a record 18 percent last year to rein in inflation and support the shilling, meets tomorrow, according to the bank’s website. Eight out of twelve economists in a Bloomberg survey expect a rate cut ranging from a half percentage point to one percentage point.

Inflation slowed to a 15-month low in June, declining for the seventh straight month to 10.1 percent from 12.2 percent in May, the Kenya National Bureau of Statistics said in an e-mailed statement June 29. It is down from a peak of nearly 20 percent in November.

Kenya accepted 6.5 billion shillings ($77 million) in repurchase agreements maturing in seven days at a weighted average rate of 16.362 percent, a central bank official, who asked not to be named in line with policy, said. The bank also accepted 1.3 billion shillings in 28-day deposits at 16.392 percent, using its open market operations to reduce the total money supply.

Tanzania’s shilling weakened for a third day, the longest losing streak since June 7, depreciating 0.3 percent to 1,584 per dollar. Uganda’s shilling weakened 0.1 percent to 2,472.50 per dollar, reversing an earlier decline of as much as 0.7 percent, the most since May 15.

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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