TS: Kenya shilling eases against dollar, seen weakening further
The Kenya shilling weakened marginally against the dollar yesterday, b ut remained stronger than i ts level just before a record interest rate cut a day earlier that was broadly in line with market expectations. At 0820 GMT, commercial banks quoted the shilling at 84.40/50 to the dollar, compared with 84.90/85.10 in the run-up to the rate cut on Wednesday afternoon and 84.30/50 at Wednesday's market close.
"It (the dollar) has slightly strengthened because of demand from the corporate and energy sector," Sameer Lagadia, head of trading at Diamond Trust Bank, said. Citing a background of declining inflation and exchange rate stability, the central bank slashed its key lending rate by 350 basis points to 13 percent.
All nine analysts polled by Reuters expected the Central Bank to cut its policy rate after year-on-year inflation fell for the ninth straight month in August an d by more than expected to 6.09 percent, the lowest since January. The analysts had expected an interest rate cut of a median 300 basis points.
"The thinking that it would weaken on the rate cut was proved to be wrong. The cut was already priced in," said Chris Muiga, senior trader at Kenya Commercial Bank. However, he said there remained dollar demand from the energy sector. "So what we're going to see, it's going to weaken," he said.
In the wake of Wednesday's rate cut, economic analysts said there was room for further loosening in the easing cycle, but that future cuts might not be as aggressive. Razia Khan, head of Africa research at Standard Chartered, said another 400 basis points in total looked a "done deal".
"We maintain our expectation that the shilling will come under weakening pressure as we approach year- e nd 2012, when we project (t he shilling) t o be at 88 ( per dollar)," Renaissance Capital said in a research note yesterday. An increase in the food import bill and a rise in government spending ahead of elections - which typically leads to an increase in imports - also presented downside risks to the shilling. The shilling is down 0.9 percent against the dollar in the year-to-date.
