June 2 (Bloomberg) -- Kenya’s shilling weakened the most in more than a week against the dollar, making it the world’s worst performer today, as the central bank’s purchase of the U.S. currency increased supply.
The currency of East Africa’s biggest economy depreciated as much as 1.3 percent to 87.10 per dollar and traded 1.1 percent down at 86.95 by 4:41 p.m. in the capital, Nairobi. A close at that level would be the weakest since May 23. Yesterday was a public holiday.
The central bank bought $4 million at a rate of 86.9088 shillings, it said in a statement on its Bloomberg page today. It purchased 500 million shillings ($6 million) of repurchase agreements at 5.7 percent, an official who can’t be named in line with the bank’s policy said in a phone interview. In a repurchase agreement, an investor agrees to sell a security to another trader, while at the same time arranging to buy it back at a future date and at a pre-determined price.
“The shilling has weakened due to the central bank’s decision to build its reserves, and further build-up will put pressure on the currency,” Jeremiah Kendagor, head of trading at Nairobi-based Kenya Commercial Bank Ltd., said in a phone interview today.
Kenya’s monetary policy committee raised the benchmark interest rate by a quarter-percentage point to 6.25 percent and the cash reserve ratio by a quarter of a percentage point to 4.75 percent, central bank said on May 31.
Inflation accelerated for a seventh month to a 25-month high of 13 percent in May, as fuel prices rose in line with surging global commodity costs, while dry weather made food more expensive, the Kenya National Bureau of Statistics said today. The government’s inflation target is 5 percent. The shilling has depreciated 7.2 percent against the dollar this year, the third- worst performer after Suriname’s dollar and the Maldives’ rufiyaa among all currencies tracked by Bloomberg.
The shilling “is a laggard and we are nervous about rates,” Matthew Pearson, the head of Africa equity products at Standard Bank Group Ltd., said at the Eye on Africa conference at Bloomberg’s London office today. “Rates need to push up far more aggressively” as inflation has been rising.
--With assistance from Ana Monteiro in Johannesburg. Editors: Ana Monteiro, Linda Shen
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