Oct. 11 (Bloomberg) -- Kenya’s shilling led declines against the dollar and weakened to the lowest on record as demand for dollars by oil importers and telecommunications companies increased.
The shilling slumped as much as 3 percent to 106.75 per dollar, the weakest on record, according to International Monetary Fund data. It traded 2.5 percent down at 106.15 by 5:18 p.m. in Nairobi, extending its drop this year to 24 percent, making it the world’s worst-performing currency over both periods.
“The high demand for dollars by oil importers is still putting pressure on the shilling and we expect it to continue weakening,” John Muli, a trader at Nairobi-based African Banking Corp., said in a phone interview. Duncan Kinuthia, head of trading at Commercial Bank of Africa Ltd., said there had also been demand for dollars from telecommunications companies.
Inflation accelerated to 17.3 percent last month, more than triple the government’s 5 percent target. Kenya’s central bank last week raised its benchmark interest rate by four percentage points to a record 11 percent to bolster the currency.
The shilling may weaken further in the coming two to three weeks, possibly to 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.”
Kenya’s government announced plans earlier today to help stabilize the shilling by boosting domestic food production to curb imports and demand for foreign exchange to pay for them.
--With assistance from Johnstone Ole Turana in Nairobi. Editors: Paul Richardson, Ana Monteiro.
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