Bloomberg News

Kenya Shilling Gains 2nd Day as Central Bank Curbs Money Supply

July 17, 2012

Kenya’s shilling gained for a second day, rallying the most in more than a week, as the central bank stepped up restrictions on money supply.

The currency of East Africa’s largest economy appreciated as much as 0.5 percent to 83.75 per dollar and was trading 0.1 percent stronger at 84.03 by 5:10 p.m., in the capital Nairobi. A close at this level will be the biggest one-day advance since July 9, according to data compiled by Bloomberg.

“The shilling rally is due to the central bank’s continued mop-up drive, with the market demand and supply of dollars matching well,” John Muli, a dealer at Nairobi-based African Banking Corp., said in a phone interview today.

The Central Bank of Kenya accepted 800 million shillings ($9 million) of seven-day repurcahse agreements at a weighted average rate of 14.456 percent, a central bank official, who declined to be identified in line with policy, said by phone from Nairobi. The bank also accepted 600 million shillings of 21-day term-auction deposits at 14.76 percent, and 600 million shillings of 28-day deposits at 14.5 percent, the official said.

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.

Uganda’s shilling gained 0.4 percent to 2,470 per dollar, while the Tanzanian shilling weakened less than 0.1 percent to 1,586 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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