Kenya Shilling Heads for Weakest in 17 Years; Central Bank Boosts Reserves
Kenya’s shilling headed for the weakest close in 17 years against the dollar as the central bank bought foreign currency for a third day to bolster reserves.
The currency of East Africa’s biggest economy depreciated for a fourth day, losing as much as 0.6 percent to 86.35 per dollar and trading 0.5 percent weaker at 86.20 by 2:01 p.m. in Nairobi, the capital from a close of 85.80 yesterday.
The Central Bank of Kenya bought 4 million euros ($6 million) at 122.2344 shillings each today, taking purchases of the common European currency to 14 million euros in the past three days, according to central bank data. It also sold 1 billion shillings ($12 million) of repurchase agreements at 5.75 percent today after doing the same yesterday.
“They are trying to build up their reserves as they are close to their target of four months’” import cover, Coura Fall, an analyst with Citibank NA in Johannesburg, said by phone today. “But buying the foreign exchange, they know they are adding on the liquidity pressure, so by coming back and doing the repo they are trying to offset what they have done with forex.”
In a repurchase agreement an investor agrees to sell a security to another trader, while at the same time arranging to buy it back at a future date and at a pre-determined price.
Kenya’s usable foreign-exchange reserves increased to $3.96 billion, or 3.84 months’ import cover, last week from $3.956 billion in the week to April 29, the Nairobi-based Central Bank of Kenya said in an e-mailed statement on May 6.
The Central Bank of Kenya Act stipulates the country must hold a minimum of four months of import cover in reserve.
Commodities extended declines after China raised banks’ reserve requirements, heightening speculation slower growth will curb raw materials demand. Greek government bonds fell, raising yields on two-year notes to a record, as speculation the country will have to restructure its debt intensified.
“The global risk aversion due to re-emerging debt crisis concern in the eurozone is pushing the Central Bank to build its reserves to ensure importers have access to sufficient foreign exchange,” Chris Muiga, a senior dealer at Nairobi-based Kenya Commercial Bank Ltd. (KNCB), said in a phone interview today.
To contact the reporters on this story: Johnstone Ole Turana in Nairobi at jturana@bloomberg.net; Sarah McGregor in Nairobi at smcgregor5@bloomberg.net
To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net; Andrew J. Barden at barden@bloomberg.net
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