Kenyan Central Bank Sees Economy Benefiting From Weak Shilling

The Central Bank of Kenya said market participants should change their misperceptions about the weaker shilling, which can help the economy by boosting the competitiveness of the nation’s exports and domestic investment.

It’s misleading to suggest that depreciation of the shilling against foreign currencies is “bad for the economy,” the Nairobi-based central bank said today in a statement on its website. “An appreciating currency is like a tax hike,” it said. “It increases the burden on manufacturers of domestic goods while making imports cheaper domestically.”

The currency of East Africa’s biggest economy has dropped 3.9 percent against the dollar in the past year. It fell as much as 0.2 percent and traded unchanged at 87.35 per dollar by 2:32 p.m. in Nairobi. The central bank frequently offers repurchase agreements and term-auction deposits and irregularly sells dollars, which are tools used to mop up liquidity and bolster the shilling.

The central bank is not seeking to influence the exchange rate, it said. “The Central Bank of Kenya provides the policy environment and does not target a particular level or direction of change of the exchange rate,” according to the statement.

The central bank’s Monetary Policy Committee says the shilling trades in a range of 5 percent in either direction “and so we expect the exchange rate will move to correct for any imbalances in the long run,” according to the statement.

Kenya’s widening current account deficit has kept the currency under pressure, Konstantin Makarov, director at Stratlink Africa, said in e-mailed note yesterday. The gap on the current account, the broadcast measure of trade in goods and services, widened to $4.63 billion in April from $3.89 billion a year earlier, the central bank said on July 30.

Kenya is the world’s largest black-tea exporter, it sells high-quality coffee and flowers abroad as well as horticulture items and consumer goods, according to trade data.

Tullow Oil Plc (TLW), the U.K. explorer that found Kenya’s first crude last year, expects to start initial production in 2014.

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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