Oct. 11 (Bloomberg) -- Kenya’s government pledged to introduce new measures to help stabilize the shilling as the currency of East Africa’s biggest economy plunged to a new low.
The country will boost farm output and the nation’s strategic food reserves in an effort to curb food imports and “thereby support the foreign-exchange reserves and balance of payments,” Chris Okemo, head of the parliamentary finance committee, told reporters today in Nairobi.
The government is continuing talks with the International Monetary Fund about providing $250 million to $300 million of balance-of-payments support, said Okemo, a former finance minister of Kenya. The funds would be in addition to an almost $509 million, three-year credit facility agreed to in January, the Finance Ministry said last week.
The shilling has weakened 24 percent this year as inflation accelerated to 17.3 percent last month, more than triple the government’s 5 percent target. Kenya’s central bank on Oct. 5 raised its benchmark interest rate by four percentage points to a record 11 percent to bolster the currency. Two days later, Prime Minister Raila Odinga said the country would do “everything possible” to stabilize domestic financial markets.
The shilling was trading at 106.45 against the dollar, the weakest on record according to IMF data, at 2:47 p.m. in Nairobi. It closed at 103.60 yesterday.
“There is high demand in a thin market and we are seeing very little in terms of inflows,” Duncan Kinuthia, head of trading at Commercial Bank of Africa Ltd., said in a phone interview from Nairobi today. “Most of the demand is from telecommunication companies.”
The shilling may weaken further in the coming two to three weeks, possibly as low as 110 per dollar “on momentum alone,” said Aly-Khan Satchu, head of Rich Management, a Nairobi-based investment company.
“There is some kind of Africa risk aversion going on” amid the European debt crisis, Satchu said by phone. “We have a very illiquid and nervous market where no one is prepared to take any risk.”
The parliamentary committee will meet officials from the agriculture, finance and energy ministries at a future date to discuss measures to help the shilling, Okemo said. He spoke after Central Bank of Kenya Governor Njuguna Ndung’u addressed the committee about the shilling’s depreciation.
Ndung’u said the recent drop in Kenya’s foreign-exchange reserves is largely because of sales by the central bank to support the shilling. The country’s reserves declined to $3.73 billion last week from $3.78 a week earlier, the central bank said on Oct. 7.
--Editors: Paul Richardson, Alastair Reed.
To contact the reporters on this story: Johnstone Ole Turana in Nairobi at firstname.lastname@example.org; Eric Ombok in Nairobi at email@example.com.
To contact the editor responsible for this story: Paul Richardson at firstname.lastname@example.org