MPC to meet a month early as weak shilling struggles

Kenya’s central bank brought its next monetary policy meeting forward by four weeks to June 9 after the shilling fell to a three-and-a-half year low, which analysts said could signal a plan to raise rates.

The shilling has been sliding for more than a year but the pace of the fall has picked up in recent weeks, partly due to the global strength of the dollar and plunging foreign exchange flows from tourism in the wake of Islamist attacks.

The Central Bank of Kenya (CBK) said on its website that the Monetary Policy Committee, which meets to set rates every two months, would hold its next sitting on June 9 but did not give a reason for the change.

At its last meeting on May 6, the bank held the benchmark lending rate at 8.50 per cent, a level it has been at since May 2013. The bank said it would use open market operations to pursue its tightening stance and stabilise prices.

Analysts said the bank may aim to reassure importers and other businesses that it was actively concerned and would try to slow the fall, or possibly raise the benchmark lending rate.

“It would be unusual for the CBK to call an early meeting, only to keep everything on hold so this in itself may provide some clues as to the policy intention,” Razia Khan, head of research for Africa at Standard Chartered in London, said.

By 0958 GMT, the shilling was trading at 98.15/98.35, around its lowest level since November 2011. It has lost 8.5 per cent of its value against the dollar since the start of the year.

One trader, who asked not to be identified, said bringing forward the meeting would “send the right signals to the biggest importers that ‘Please note we are aware of what has happened to the shilling’,” said the trader.

The trader said the central bank’s message seemed to be that “as much as it is inherently weak, we will do as much as possible to use other monetary tools to contain the shilling weakness and of course the inflationary pressures.”

“I guess they need to address this issue. My take is they one, will look at the interest rate side -- overnight rate is above 12 per cent -- and how to support the shilling,” another senior trader said.

The weighted average interbank lending rate rose to 12.7569 per cent on Tuesday from 12.4179 per cent on Monday, a sign of tightening shilling liquidity.

“Panic buying, as tends to happen when the shilling depreciates suddenly, is expected to weigh on the shilling in the near term. The only reprieve for the local unit is the tight liquidity in the overnight interbank lending markets,” Bank of Africa said in its market report.