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Kenya Shilling Strengthens as Central Bank Raises Lending Rate

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Sept. 15 (Bloomberg) -- Kenya’s shilling strengthened against the dollar after the central bank increased its benchmark rate to curb money supply.

The currency of East Africa’s biggest economy appreciated as much as 0.8 percent to 94.35 per dollar and was trading up 0.2 percent to 94.9 at 11:12 a.m. in Nairobi, the capital, from yesterday’s close of 95.10.

The central bank rate was lifted to 7 percent from 6.25 percent, the biggest increase since the rate was introduced in 2006. Governor Njuguna Ndung’u said the bank’s “overriding objective” is to curb inflation after earlier actions “failed to deliver stability,” according to an e-mailed statement yesterday.

“The shilling has strengthened as a result of the decision to curb money supply by the central bank in an effort to tame inflationary pressure,” Duncan Kinuthia a dealer at Nairobi-based Commercial Bank of Africa Ltd., said in a phone interview.

Ndung’u, 52, cut the key rate in January even as the worst regional drought in six decades boosted inflation, triggering a 15 percent slump in the shilling against the dollar. The bank reversed the decision two months later and restricted liquidity to commercial lenders in a bid to shore up the currency. That policy failed, with banks losing faith in the central bank’s ability to manage the crisis.

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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