NAIROBI: The Kenyan shilling inched lower on Wednesday as importers bought dollars in anticipation of an interest rate cut later in the week.
At 0722 GMT, commercial banks quoted the shilling at 86.50/70 to the dollar, slightly down from Tuesday's close of 86.40/60.
"Customers are being cautious ahead of tomorrow's rate decision," said John Muli, a trader at African Banking Corporation.
The consensus from a Reuters poll of 11 analysts and traders is for a cut of 100 basis points to 10 percent as the central bank seeks to drive economic growth by lowering costs of credit.
Lower interest rates normally make it easier for importers to access credit, driving up demand for dollars that in turn puts pressure on the shilling.
The shilling has slipped over 3 percent against the dollar since policymakers embarked on a rate easing cycle on July 5. They have since slashed the central bank lending rate by 700 basis points to 11 percent.
Traders said the central bank could intervene to support the shilling through the sale of dollars to commercial banks.
The central bank, which has actively mopped up excess shilling supply since last year, sold dollars directly in the market during Friday's and Monday's trading sessions.
Peter Mutuku, head of trading at Bank of Africa, said the outlook for the shilling remained bearish ahead of a presidential election slated for March 4 and he expected some importers to drive up demand for dollars in the run-up to the vote.
"At the moment it's still the normal after-holiday (dollar) demand. Hedging has not started yet, but we can't rule it out in the short term," Mutuku said.
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