June 21 (Bloomberg) -- Kenya’s shilling plummeted to its weakest level in 17 years as demand for dollars increased from corn importers seeking to address shortage of the grain.
The currency of East Africa’s biggest economy slumped as much as 0.9 percent to 91.60 per dollar and was trading 0.6 percent lower at 91.32 at 3:18 p.m. in the capital, Nairobi, from yesterday’s close of 90.75. A close at this level will be the weakest since March 1994. That’s when Kenya abolished exchange controls, allowing the shilling to trade freely, Jeremiah Kendagor, head of trading at Kenya Commercial Bank Ltd., said by phone.
Kenya is a net importer of food in years of drought, Peter Kegode, an independent economist, said by phone yesterday. Rain in the three months through May was “highly depressed and poorly distributed,” curbing agricultural production and hydropower output, the Kenya Meteorological Department said on May 26. The price of corn, the nation’s staple food, has increased 64 percent over the past year.
“The shilling weakening is being driven by increased demand for dollars by corn millers who have to increase their corn supply to meet the country’s food deficit,” Mwambu Malamba, a senior dealer at Nairobi-based Commercial Bank of Africa Ltd., said in a phone interview today.
Imports of corn will be duty-free until the end of the year to address a food shortage caused by drought, Finance Minister Uhuru Kenyatta said in a government gazette on June 17.
The shilling, the continent’s worst performer this year, has slumped 12 percent since Jan. 1, according to data compiled by Bloomberg. Standard Bank Group Ltd., Africa’s biggest lender, expects the shilling to lose another 2 percent within a month to 92.5 per dollar.
Central bank Governor Njuguna Ndung’u told traders on June 19 there was no need for panic selling of the shilling.
“The bank wishes to assure the market that the panic is not warranted,” Ndung’u said in comments published by the Nairobi-based Standard on Sunday newspaper. The shilling is likely to stabilize when Greece’s sovereign debt crisis settles and Kenya completes the current cycle of importing capital goods, he said.
--Editors: Ana Monteiro, Shanthy Nambiar
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