The currency of East Africa’s biggest economy depreciated as much as 1.7 percent to 100.5 per dollar and was trading 1.6 percent lower at 100.38 by 11:08 a.m. in Nairobi, the capital.
“The weakening of the shilling is a reaction to the unresolved euro debt crisis which is causing all emerging-market currencies to weaken, and with businesses’ month-end obligations coming through it’s likely to remain under pressure,” Jeremiah Kendagor, acting head of trading at Nairobi-based Kenya Commercial Bank Ltd., said by phone
Emerging-market stocks fell to a two-year low and most European equities retreated as Europe’s finance ministers and central bankers urged policy makers to intensify efforts to contain the region’s debt crisis.
U.S. Treasury Secretary Timothy F. Geithner warned at the annual meeting of the International Monetary Fund that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.”
Kenya’s central bank said it injected liquidity into domestic financial markets last week and vowed to take further action to smooth currency volatility after the shilling fell to a 17-year low. The shilling has depreciated 20 percent this year, making it the world’s second-worst performer against the dollar as inflation in East Africa’s biggest economy soared to 16.7 percent, more than triple the government’s target.
Central Bank of Kenya said it is “committed to a market- determined exchange rate as long as it is supported by fundamentals,” Governor Njuguna Ndung’u said in an e-mailed statement from Nairobi on Sept. 23.
“The central bank statement may spook investors who may interpret it to mean the regulator may impose any type of currency restriction,” Aly-Khan Satchu, head of Rich Management, a Nairobi-based advisory company, said by phone.
The shilling may weaken to as low as 110 shillings per dollar, he said, without giving a timeline. “One hundred is a totemic number that captures the market’s imagination and that of every single Kenyan,” Satchu said.