Bloomberg News

Kenya’s Shilling Heads for Three-Week Low as Inflation Surges

September 01, 2011

Sept. 1 (Bloomberg) -- Kenya’s shilling headed for a three- week low against the dollar after a report showed inflation quickened to more than triple the target and borrowing costs fell, eroding returns on assets.

The currency of East Africa’s biggest economy depreciated 0.4 percent to 94.05 per dollar by 12:21 p.m. in the capital, Nairobi, heading for the weakest close since Aug. 9.

Surging food and fuel prices raised inflation to 16.7 percent in August, a 10th month of advances, the Kenya National Bureau of Statistics said on Aug. 29. The shilling, which weakened to a 17-year low on Aug. 9, has added to price pressures by increasing the cost of imports. The overnight discount rate is now at 17.87 percent, according to the Nairobi- based central bank’s website. That compares with 31.4 percent on Aug. 26, Reuters reported on Aug. 30.

“Overnight rates are easing and there is more liquidity between the banks,” Duncan Kinuthia, a currency trader with Commercial Bank of Africa, said by phone from Nairobi today. “Inflation has been priced in as well; we’re seeing persistent inflation.”

Financial markets in Kenya were closed yesterday to mark Eid al-Fitr, the end of the Muslim holy month of Ramadan.

The average interbank lending rate in Kenya declined to 19.25 percent on Aug. 30, compared with 27.7299 a day earlier, after the central bank changed the way it calculates charges for loans from its discount window.

--Editors: Ana Monteiro, Linda Shen

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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