UPDATE 1-Kenyan shilling hits 2-month low ahead of rate decision

Tue Sep 4, 2012 10:28am EDT

* Importers, banks buy dollars on rate cut concern
    * Shares seen gaining as debt yields fall further

 (Recast with markets close, stocks)
    By Kevin Mwanza
    NAIROBI, Sept 4 (Reuters) - The Kenyan shilling hit a
two-month low against the dollar on Tuesday, breaking through
the 84.50 resistance level as banks and importers stocked up on
greenbacks ahead of an expected large rate cut by the central
bank.
    At the close of trade, commercial banks quoted the shilling
at 84.65/85 per dollar, a level last touched on July 6, and 0.5
percent weaker than Monday's close of 84.20/40.
    Traders said the local currency was expected to weaken
further ahead of Wednesday's interest rate decision by the
central bank's Monetary Policy Committee (MPC).
    "A bit of client activity since late yesterday triggered
interbank short covering. The shilling could touch 85.00 easily
even before the MPC decision comes out," said Duncan Kinuthia,
head of trading at Commercial Bank of Africa.
    A Reuters poll of nine analysts and traders returned a
median forecast of a 300 basis point cut in the central bank
rate after year-on-year inflation fell
sharply in August to 6.09 percent, the lowest level since
January 2011.  
    Typically, low interest rates make credit cheaper for
importers and easier for commercial banks to hold long dollar
positions, putting the shilling under pressure.
    The central bank continued to take out liquidity through
repurchase agreements (repos), mopping up 5.5 billion shillings
($65.2 million). It received 7.9 billion shillings for the 5.5
billion it had offered on Tuesday. 
    In stocks, the main NSE-20 Share Index gained for
the first time in four sessions, up 1.1 percent to 3,895.62
points.
    "Declining returns in the fixed income market, coupled with
expectations of a further cut in CBR  ... are expected to
continue shifting investor interest to stocks," Afrika
Investment Bank said in a daily report.
    British American Tobacco led the gains, jumping 9.5
percent to 415 shillings, buoyed by an attractive dividend
yield, traders said.
    In the debt market, government and corporate bonds worth 4.2
billion shillings were traded, down from 4.30 billion shillings
on Monday.
               ...........................Shilling spot rates 
                  .....................Shilling forward rates 
                           .......................Cross rates 
         ..................................Local contributors 
           .......................Central Bank of Kenya Index 
          .....................Kenyan Bonds contributor pages 
                          ...............Treasury bill yields 
        ..................Central bank open market operations 
        .........................Horizontal repo transactions 
         ,       ................Daily interbank lending rate 
              .............................Kenya Bond pricing 
             ..................Real time Africa economic data 
 <ECI & AFR> ...........................African economic news
          .................................NSE-20 Share Index
         .................................NSE All Share Index
             ...........................FT NSE Kenya 15 Index
             .......................... FT NSE Kenya 25 Index
  SPEED GUIDES:
                                    
            
 ($1 = 84.4000 Kenyan shillings)

 (Editing by Yara Bayoumy, Ron Askew)
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