Bloomberg News

Kenyan Shilling Gains for Third Day as Central Bank Curbs Supply

June 04, 2012

Kenya’s shilling gained for the third day, the longest winning streak in more than a month, as the central bank removed liquidity in the money market.

The currency of East Africa’s biggest economy appreciated as much as 0.6 percent to 85.55 per dollar and was trading 0.1 percent to 85.95 at 1:31 p.m. in Nairobi. This is the longest series of gains since April 27, according to data compiled by Bloomberg.

The central bank accepted all 9.27 billion shillings ($108 million) in bids for seven-day repurchase agreements, less than the 19 billion shillings on offer, at a weighted average rate of 17.624 percent, a Central Bank of Kenya official, who declined to be named in line with policy, commented by phone from Nairobi, the capital.

The Finance Ministry is encouraging the central bank to intervene whenever necessary to smooth volatility in the exchange rate and support “genuine dollar demand” from the market, Permanent Secretary Joseph Kinyua said in an interview on May 31 in the capital.

“After reaching a four and a half-month low of 86.75 last week, the Kenyan shilling has reversed most losses, as the local unit receives support from foreign exchange inflows from non- governmental organisations which have helped meet the persistent demand from oil companies,” Leon Myburgh, a foreign-exchange strategist at South Africa based CitiGroup Inc., said in a note to clients.

Interest Rate

The central bank holds its monthly monetary policy committee meeting tomorrow, according to its website. Five out of six economists surveyed by Bloomberg expect the committee to main the benchmark interest rate at 18 percent.

“Uncertainty about tomorrow’s MPC decision is also keeping many participants out of the market as not sure about direction, though we expect the rate likely to be left at 18 percent providing support for the shilling,” Myburgh said.

Kenya expects to receive $240 million this week, part of a syndicated loan, which will help support the currency, Kinyua said.

Kenya’s trade deficit widened in March as fuel imports rose to the highest in seven months, the Kenya National Bureau of Statistics said on May 30 on its website. The gap increased 22 percent from a year earlier to 80.3 billion shillings. The inflation rate fell to the lowest for more than a year in May, slowing for a sixth month, to 12.2 percent from 13.1 percent a month earlier, the Nairobi-based Kenya National Bureau of Statistics said in an e-mailed statement on May 30.

The pressure on the shilling has been caused by increased imports to support infrastructure projects, and that should ease soon, Kinyua said.

The Ugandan shilling weakened 0.5 percent to 2,487.50 per dollar while Tanzania’s shilling appreciated 0.3 percent to 1,587 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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