Bloomberg News

Kenya Shilling Rises to Highest in 2 Months on Tighter Liquidity

July 09, 2012

Kenya’s shilling rallied to the highest in almost two months as the central bank extended its policy of withdrawing liquidity for a ninth consecutive day, tightening money supply.

The currency of East Africa’s largest economy appreciated for a second day, gaining as much as 0.5 percent to 83.50 per dollar, the strongest level on a closing basis since May 10, before paring its advance to less than 0.1 percent at 83.85 per dollar by 5:13 p.m. in Nairobi.

The Central Bank of Kenya has curbed money supply every day since June 27. It has pulled 35.9 billion shillings ($428.1 million) through repurchase agreements and 27.4 billion shillings by way of term-auction deposits, which are among the tools the bank deploys to conduct open market operations.

“The persistent mopping-up by the central bank is supporting the shilling as it curbs money supply,” Raphael Agung, a dealer at Nairobi-based Commercial Bank of Africa Ltd., said in a phone interview.

The bank sold today 3.85 billion shillings of seven-day repos at a weighted average rate of 15.25 percent, said an official, who asked not to be identified in line with policy. It also accepted 350 million shillings of bids for 21-day term auction deposits at 15 percent and 810 million shillings in 28- day deposits at 15.033 percent, the official said by telephone from Nairobi.

Inflation

The bank cut its benchmark lending rate for the first time in 18 months on July 5, reducing the key rate by 1.5 percentage points to 16.5 percent as inflation nears the government’s 9 percent target. 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.

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 a drought.

The Tanzanian shilling and Ugandan shilling traded unchanged at 1,590 per dollar and 2,480 per dollar, respectively.

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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