Bloomberg News

Kenya’s Shilling Weakens to 17-Year Low on Oil, Diageo Unit Buy

June 07, 2011

June 7 (Bloomberg) -- Kenya’s shilling depreciated to the weakest in 17 years against the dollar as oil importers bought the U.S. currency to make payments and on bets Diageo Plc’s Kenyan unit was buying dollars to pay for its purchase of SABMiller Plc’s 20 percent stake in Kenya Breweries Ltd.

The currency of East Africa’s biggest economy slumped as much as 0.9 percent to 87.75 per dollar and was trading 0.8 percent down at 87.65 by 5:41 p.m. in the capital, Nairobi. A close of this level will be the weakest since March 1994.

Oil, which has climbed 8.2 percent this year, fell in New York on speculation that OPEC may raise output quotas when the group meets in Vienna tomorrow. Diageo’s East African Breweries Ltd. agreed to buy SABMiller’s’ stake in Kenya Breweries for 19.5 billion shillings ($225 million) as part of an agreement to end cross shareholdings in each other’s operations, it said yesterday.

“The weakening of the shilling is being driven by increase demand from oil importers and speculation of East African Breweries buying dollars to enable it pay for the 20 percent stake,” Julius Kiriinya, a dealer at Nairobi-based African Banking Corp., said in a phone interview today.

Kenya’s inflation rate, which jumped to a 25-month high in May, is expected to rise further this year as dry weather curbs agricultural production, central bank Governor Njuguna Ndung’u said on yesterday.

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, the central bank said on May 31.

Finance Minister Uhuru Kenyatta is expected to present the budget for the 2011/2012 fiscal year tomorrow in the national parliament.

--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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