Kenya Shilling Gains for 3rd Day to as The Central Bank Tightens Policy

Kenya’s shilling headed for the longest streak of advances in almost two months against the dollar after the central bank raised its overnight lending rate to try curb inflation and speculative trading.

The currency of Africa’s biggest economy gained for a third day, appreciating 0.4 percent to 89.40 per dollar by 3:31 p.m. in Nairobi, the capital. Today’s increase pares the currency’s slump this quarter to 7 percent, the worst since the three months through September 2008, when it fell 11 percent.

The Central Bank of Kenya increased the overnight lending rate to 8 percent to rein in price growth and curb speculation in the shilling, it said yesterday. It previously used the benchmark central bank rate, which is at 6.25 percent, to price overnight loans. The bank, which said it will review the bank- lending rate daily, left it unchanged today, it said on its website.

“The central bank action sends the clearest signal to the market that the weakening of the shilling is not supported by fundamentals and it’s determined to curb arbitrage and speculative trading,” Fred Moturi, a fixed-income dealer at Nairobi-based Sterling Investment Bank Ltd., said by phone.

The central bank didn’t get any bids for an eight consecutive session where it offered 500 million shillings ($6 million) of repurchase agreements, an official who declined to be named in line with the Nairobi-based bank’s policy. It stayed out of the foreign currency market.

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.

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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