Bloomberg News

Kenya Shilling Heads for Almost 3-Week Low on Inflation Concern

June 06, 2011

June 6 (Bloomberg) -- Kenya’s shilling depreciated and headed for an almost three-week low against the dollar as the central bank said it expects inflation to rise beyond a 25-month high this year.

The currency of East Africa’s biggest economy weakened 0.1 percent to 86.90 per dollar by 2:19 p.m. in the capital, Nairobi. A close of this level will be the weakest since May 18. The shilling is the third-worst performer against the dollar worldwide this year after Suriname’s dollar and Maldives’ rufiyaa, according to data compiled by Bloomberg.

Kenya’s inflation rate may rise above the 13 percent recorded in May as dry weather curbs agricultural production and threats of potential food shortages impact on the balance of payments position, Governor Njuguna Ndung’u said in an e-mailed statement today.

“The expectation of higher inflation will put the shilling under pressure in the coming days,” Jeremiah Kendagor head of trading at Nairobi-based Kenya Commercial Bank Ltd., said in a phone interview today.

Kenya’s central bank on May 31 raised the benchmark interest rate by a quarter percentage point to 6.25 percent and lifted the cash reserve ratio for banks, changing its focus to taming inflation from spurring economic growth.

“Threats from potential food shortages were likely to impact negatively on the balance of payments position and inflation later in the year,” Ndung’u said.

--Editors: Ana Monteiro, Linda Shen

To contact the reporter on this story: Johnstone Ole Turana in Nairobi at jturana@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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