NAIROBI: Cautious trading in Kenya's currency market on Wednesday left the shilling steady against the dollar early in the session as investors awaited direction from a rate decision by the central bank later in the day.
All nine analysts polled by Reuters ahead of Wednesday's meeting forecast the bank's Monetary Policy Committee (MPC) would leave the key rate unchanged at 18 percent, a move some traders said would keep the local currency on the back foot.
"The market is waiting to see what MPC has to say," said Robert Gatobu, a trader at Bank of Africa.
When asked how a rate hold would impact on the shilling, Gatobu said: "There is some underlying dollar demand in the market, but central bank has been active in the market supporting the shilling. We expect them to continue doing that."
At 0735 GMT, commercial banks quoted the shilling at 87.25/45 against the dollar, barely changed from Tuesday's close of 87.20/40.
The central bank has taken out a total of 11.65 billion shillings ($134 million) through repurchase agreements and sold an unspecified amount of dollars this year, easing pressure on the shilling from importers buying dollars after the holidays.
The regulator, which was widely criticised for not taking an early decisive action to stem the shilling's plunge last year to a record low of 107 in October, raised its key rate sharply in the fourth quarter to stem shilling volatility and high inflation.
Nairobi-based Genghis Capital said in a research note that a hold on the benchmark rate might be interpreted as an acceptance by the central bank of persistent volatility in the exchange rate.
"This would potentially cause resurgence in negative sentiment on the outlook for the Kenya Shilling and by extension, inflation," said Genghis Capital, adding it saw scope for a possible rate rise.
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