Dec. 15 (Bloomberg) -- Kenya’s shilling strengthened for a third day against the dollar as a higher cash reserve ratio, effective today, and repurchase agreements reduced liquidity.
The currency of East Africa’s biggest economy strengthened as much as 2.8 percent to 84.88 per dollar before paring its gains to 2.6 percent at 85 per dollar as of 5:17 p.m. in Nairobi. A close at this level will be the highest since May.
Kenya’s central bank accepted 250 million shillings ($2.9 million) at 11.9 percent for its 4 billion-shilling repurchase agreements today. An increase in the cash reserve ratio, the percentage of total deposits commercial banks are prohibited from lending, by 50 basis points to 5.25 percent, takes effect today, the central bank said on Nov.1.
“The increase in the cash reserve ratio and participation of the central bank in the money market through repurchase agreements has sucked liquidity, hence the strengthening of the shilling,” Duncan Kinuthia, a dealer at Nairobi-based Commercial Bank of Africa Ltd., said in a phone interview. The shilling is likely to gain further as businesses wind down their operations for the year-end, he said.
The bank has mopped up 6 billion shillings in the last two days in repurchase agreements, according to data compiled by Bloomberg. In a repo, the regulator sells securities in a bid to withdraw money supply from the system.
Uganda’s currency strengthened for the fourth day, the longest streak since Dec 2., as the central bank bought dollars to stem “volatility”. The shilling gained 0.2 percent to 2,380.40, the highest since May 24.
“We intervened in the market on the buy side to curb volatility,” Jan Tibamwenda, the bank’s spokesman, said by phone from the capital, Kampala. “We bought dollars but our policy is that we don’t mention the extent of our intervention.”
The Tanzanian shilling weakened for the second time this week, declining by 0.3 percent to 1,610.
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