NAIROBI: The Kenyan shilling held steady against the dollar on Thursday as the market awaited inflation data to assess the prospects of a rate cut next week, while banking sector shares dragged down the main stocks index.

If inflation falls for the fourth consecutive month in March, as most analysts expect, policymakers could cut the central bank rate from 18 percent when they meet on April 4.

The inflation data will be issued on Friday or Monday.

At the 1300 GMT close of the market, commercial banks quoted the shilling at 83.00/15 per dollars, barely changed from Wednesday's close of 82.95/83.15.

"No major moves are expected on the shilling until inflation numbers come out and we see what the monetary policy committee will do," said Ignatius Chicha, head of markets at Citi Bank.

High interest rates have put a squeeze on market liquidity, causing banks' cost of funds to jump and boosting the shilling.

The average weighted interbank rate inched up for a fifth straight session to 23.4 percent on Wednesday from 23.3 percent on Tuesday.

"Liquidity remains tight in the market making it hard for guys to hold long dollar positions," said Kennedy Butiko, deputy head of Treasury at Bank of Africa.

On the Nairobi Securities Exchange, the main NSE-20 Share Index closed 0.2 percent lower at 3,360.12 points, led down by banks as investors booked their gains after strong earnings drove the shares up in recent weeks.

Equity Bank fell 1.5 percent to finish at 19.20 shillings per share, while Kenya Commercial Bank lost 1.1 percent to close at 22.25 shillings a share.

Shares in KCB, which has operations around east Africa, have risen 33 percent in the year to date, while Equity has added 17 percent in the same period.

"A lot of the selling is just profit-taking by some of the guys who bought earlier in the year," said Samora Kariuki, research analyst at NIC Securities.