At 0718 GMT, commercial banks quoted the shilling at
84.20/40 per dollar, 0.5 percent weaker than Wednesday's close of 83.80/84.00.
"The shilling is off on interbank realignment ahead of the decision in the afternoon," said Raphael Owino, a senior trader at Commercial Bank of Africa.
"If (a cut) comes, it will be a very tepid one to incorporate some caution on policymakers side. The shilling might not fall as fast either."
Most analysts expect the Central Bank of Kenya ( CBK) to cut its key rate after holding steady for six month. A lower inflation reading for June and slower economic growth in the first quarter if 2012 raised prospects of a cut in borrowing costs.
The bank raised rates by 11 percentage points in the final quarter of 2011 to 18 percent to counter surging inflation and to prop up the shilling.
Meanwhile CBK sought to mop up Sh7 billion ($83.4 million) from the market through repurchase agreements (repos), after ascertaining there was excess liquidity, it said on Thursday.
The bank has maintained an aggressive tightening stance for most of this year and introduced longer tenure repos in June, which have helped stabilise the shilling against the dollar, but hurt demand for government debt at auctions.
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