Bloomberg News

Kenya Shilling Snaps Three-Day Loss as Bank Curbs Money Supply

July 16, 2012

Kenya’s shilling snapped a three-day losing streak as the central bank stepped up restrictions on money supply.

The currency of East Africa’s largest economy gained less than 0.1 percent to close at 84.13 per dollar, after appreciated as much as 0.3 percent to 83.90 earlier, in the capital Nairobi.

The Central Bank of Kenya today sold a total of 7 billion shillings ($83 million) of seven-day repurchase agreements and term-auction deposits, said an official, who asked not to be identified in line with policy. That compared with 2 billion shillings on July 13. The repos and longer-tenure term auction deposits are sold by the regulator in a bid to withdraw money supply from the banking system.

“The shilling is getting support from the central bank as it increases the amount of money its curbing in the market, a situation that is likely to persist as it seek to maintain liquidity levels in the market,” Jeremiah Kendagor, head of trading at Nairobi-based Kenya Commercial Bank Ltd. (KNCB), said in a phone interview today.

The bank accepted 3.5 billion shillings of seven-day repos at a weighted average rate of 14.669 percent, the official said by phone from Nairobi. The bank also accepted 920 million shillings of 14-day term-auction deposits at 14.75 percent, 1.5 billion shillings of 21-day deposits at 14.733 percent, and 1.08 billion shillings of 28-day deposits at 14.617 percent.

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. The 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 June 29.

The Tanzanian shilling gained for a second day, rising by 0.1 percent to close at 1,583 per dollar, while Uganda’s shilling weakened 0.1 percent to 2,467.50 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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