Bloomberg News

Kenya Shilling Gains to Highest in More Than Month on Rate Rise

November 02, 2011

Johnstone Ole Turana

Nov. 2 (Bloomberg) -- Kenya’s shilling appreciated to the strongest level in more than a month against the dollar after the central bank raised the benchmark rate to a record high to help stem the shilling’s decline and curb inflation.

The currency of East Africa’s biggest economy rose for a third day, adding 1.9 percent to 96.50 per dollar by 10:29 a.m. in Nairobi, the highest intraday level since Sept. 21.

Kenya’s monetary policy committee increased the key lending rate by 5.5 percentage points to a record 16.5 percent, the Nairobi-based central bank said in an e-mailed statement yesterday. It also raised the cash reserve ratio, the percentage of deposits that lenders store at the commercial bank, by 50 basis points to 5.25 percent effective Dec. 15.

“The money market has responded appropriately to the yesterday’s decision by the central bank to raise the benchmark rate and we expect the shilling to gain against the dollar and other major currencies going forward,” Raphael Agung, assistant general manager of Treasury at Nairobi-based Commercial Bank of Africa Ltd., said by phone today.

Kenya’s shilling has rallied 3.8 percent in the past five days, making it the world’s best performer against the dollar in the period, according to data compiled by Bloomberg. The central bank has taken measures that include cutting commercial lenders’ foreign-exchange exposure limits to 10 percent from 20 percent to stem volatility in the shilling rate. The currency’s gain has trimmed its loss in 2011 to 16 percent.

The shilling’s decline this year was spurred by higher food costs as the nation experienced the worst drought in 60 years. Kenyan inflation accelerated to 18.9 percent in October from 17.3 percent in September, the Nairobi-based Kenya National Bureau of Statistics said in an e-mailed statement on Oct. 28. That compares with the target rate of 5 percent.

--Editors: Ana Monteiro, Stephen Kirkland

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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