Kenya Shilling Gains First Day in Five as Bank Sells Repurchase Agreements
Kenya’s shilling strengthened for the first day in five against the dollar after the central bank sold repurchase agreements to curb supply of the currency and counter depreciation caused by its purchase of euros this week.
The currency of East Africa’s biggest economy appreciated as much as 0.3 percent to 85.83 per dollar and traded 0.2 percent stronger at 85.92 by 12:06 p.m. in the capital, Nairobi, having closed yesterday at 86.10.
Kenya’s shilling slumped as much as 0.6 percent to 86.23 yesterday, the weakest on a closing basis since 1994, after the central bank bought 14 million euros ($20 million) this week to build up reserves. To counter the weakening effect of foreign- currency purchases, the Central Bank of Kenya sold 2 billion shillings ($23 million) of repurchase agreements this week and plans another 1 billion-shilling sale today to “mop up” shillings from the market, it said in a statement today.
“The shilling has gained ground against the dollar due to the tight liquidity in the market following the ‘mop up’ exercise,” Jeremiah Kendagor, head of trading at Nairobi-based Kenya Commercial Bank Ltd., said in a phone interview today. “It’s likely to trade within the 85.80 to 86.10 range in the coming days.”
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.
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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