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kenNAIROBI: The Kenyan shilling was stable against the dollar on Monday, though traders said they expect the local currency to weaken ahead of a possible interest rate cut on Wednesday.


The shilling was quoted at 85.40/60 to the dollar at 0713 GMT, barely changed from Friday's close of 85.35/55.


"People think the rates will be cut. That might put some pressure on the shilling," said Ignatius Chicha, head of markets at CitiBank. "Sentiment is the key thing now, but after Wednesday we may see some normalisation."


Traders said a fall in inflation in October to 4.14 percent, a two-year low, gave room for another rate cut when policymakers meet on Wednesday to set rates.


The central bank has eased its main interest rate steadily since July, cutting the lending rate by a total of 500 basis points to 13 percent against a background of declining inflation.


The shilling has been stable this year, down 0.4 percent to date, after a surge in inflation last year put pressure on several East African currencies.


It has been propped up by a relatively tight monetary stance that saw the central bank hold its benchmark lending rate at 18 percent for seven months from December 2011. The bank has also regularly mopped up shilling liquidity from the market.


"This week we expect the shilling to trade within a range of 85.20-85.60 as the market awaits the MPC (Monetary Policy Committee) base rate decision," said the Bank of Africa in a daily note to clients.


Copyright Reuters, 2012

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