Bloomberg News

Kenya Shilling Heads for Five Month Weekly Slump, on Low Yields

May 18, 2012

Kenya’s shilling fell against the dollar and headed for its highest weekly slump in five months on falling bond yields and a rush by risk-wary investors to buy dollars.

The currency of East Africa’s biggest economy retreated as much as 0.3 percent to 84.60 and was trading 0.2 percent weaker at 84.50 per dollar by 12:02 p.m. in the capital Nairobi. A close at this level would be the biggest weekly loss since January.

“The weakening of the Kenyan Shilling is on falling yields and risk-wary investors rushing to buy dollars, as the euro fell to a four-month low against the dollar on concerns about banks in Spain and Greece and the prospect of contagion if Greece exits the euro zone,” NIC Bank Ltd. (NICB) said in a note to investors.

Falling yields on government securities is undermining the shilling with reduced inflows from foreign investors, who had been targeting the higher yields, and thus supporting the currency, Raphael Agung, a dealer at Nairobi’s Commercial Bank of Africa, said yesterday.

Kenya’s three-month and six-month borrowing costs fell for the 18th straight week after the government cut the size of its weekly debt offering and halved its target for domestic debt purchases this financial year.

Kenya has lowered its target for borrowing on the local market to 62.1 billion shillings for the fiscal year ending June 30, from a previous goal of 119.5 billion shillings. The country will replace the local financing with a $600 million syndicated loan arranged by Citigroup Inc., South Africa’s Standard Bank Group Ltd. (SBK) and London-based Standard Chartered Plc (STAN), which was signed May 15.

The yield on 91-day Treasury bills declined to 10.075 percent at yesterday’s sale from a high of 20.799 percent at a sale on Jan. 12, while the yield on 182-day bills declined to 12.078 percent at a sale on May 16, from a high of 20.914 percent realized on Jan. 23, according to the Central bank website. The government had offered for sale 2 billion shillings of 3-months and 6-months treasury bills from previous offer of 4 billion shillings and 3 billion shillings respectively four weeks ago.

Turmoil

German Finance Minister Wolfgang Schaeuble said turmoil in the financial markets caused by Europe’s debt crisis may last another two years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy.

Moody’s Investors Service lowered debt ratings at 16 Spanish banks, while Fitch Ratings cut Greece’s credit rating on concern the country may not be able to sustain euro membership. Greeks go to the polls again on June 17.

Kenya has offered 7 billion shillings of bids for repurchase agreements, an official of the bank who declined to be identified in line with policy said in a phone interview from the capital, today.

“The shilling is likely to weaken in the next few days unless the central bank intervenes,” NIC Bank said in its note.

Kenya’s $600 million two-year loan accord with three foreign banks will be repaid at interest rate of 475 basis points above the London interbank offered rate, Standard Bank Group Ltd. said.

The loan has been underwritten by Citigroup Inc. (C:US), based in New York, Standard Bank, Africa’s biggest lender based in Johannesburg, and London-based Standard Chartered Plc, David McCaig, the global head of debt products at Standard Bank Group, said in an interview yesterday in Nairobi, the Kenyan capital.

“We expect the loan, which will be in foreign currency, to assist in the stabilisation of the shilling and building up of the foreign-currency reserves,” Njeru Githae, Kenya’s minister of finance, said on May 15.

Tanzania’s shilling weakened 0.3 percent to 1,588 per dollar, while the Ugandan shilling gained 0.2 percent to 2,475 per dollar.

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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