Bloomberg News

Kenya Shilling Rises Most in Two Weeks as Bank Curbs Supply

July 06, 2012

Kenya’s shilling rallied the most in more than two weeks as the central bank removed money from the market using repurchase agreements and term-auction deposits.

The currency of East Africa’s largest economy gained as much as 0.9 percent to 83.55 per dollar and was trading 0.3 percent stronger at 84.05 by 2:20 p.m., the biggest one-day gain since June 20.

The Central Bank of Kenya sold 3.8 billion shillings ($45 million) of repurchase agreements maturing in seven days at a weighted average rate of 15.48 percent, an official, who asked not to be identified in line with policy, said.

The bank also accepted 230 million shillings of bids for 14- day term auction deposits at 15.875 percent, 1.3 billion shillings of 21-day deposits at 15.375 percent and 1.53 billion shillings in 28-day deposits at 15.45 percent, the official said by telephone from Nairobi, the capital.

The longer-tenure term auction deposits introduced as “additional instruments in liquidity management have enhanced the open market operations and stabilised the interbank rate around the central bank rate,” the bank’s monetary policy committee said yesterday in an e-mailed statement.

The bank cut its benchmark lending rate for the first time in 18 months this week, reducing the key rate by 1.5 percentage points to 16.5 percent to spur the economy as inflation nears the government’s target.

The central bank raised borrowing costs by a record 12.25 percentage points in 2011 to help bolster the shilling and curb price pressures following drought. Inflation declined for the seventh straight month to 10.1 percent from 12.2 percent in May, the Kenya National Bureau of Statistics said in an e-mailed statement June 29.

Tanzania’s shilling weakened the most in almost nine months, depreciating 0.6 percent, the biggest one-day decline since Nov 1., to 1,587 per dollar. Uganda’s shilling weakened the most in almost eight weeks, declining 0.5 percent, the most since May 15 on a closing basis, to 2,480 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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