Kenya Shilling Heads for Seven-Month Low on Business BorrowingJohnstone Ole Turana
Kenya’s shilling headed for the lowest in more than seven months amid speculation businesses will increase their borrowing after the central bank slashed interest rates more than expected.
The currency of East Africa’s biggest economy depreciated less than 0.1 percent to 86.75 a dollar as of 4:04 p.m. in Nairobi, the capital, poised for the weakest since May 30, according to data compiled by Bloomberg.
The shilling slipped 0.5 percent last week, the most since the five days through Nov. 23, after the Central Bank of Kenya cut its benchmark interest rate from 11 percent to 9.5 percent, compared with a 1 percentage-point reduction forecast by seven of 10 economists and analysts surveyed by Bloomberg. The bank, which sold dollars yesterday, stayed out of the market today, an official at the foreign-exchange department who asked not to be identified in line with policy, said by phone.
“The shilling is sliding due to the rate-cut decision as businesses find it cheaper to finance their imports by borrowing,” Nairobi-based NIC Bank Ltd. said in a note. “The central bank intervened to sell dollars and mop up liquidity.”
The shilling is expected to depreciate “modestly” to the 88 a dollar level by year end and to 90 by 2014, Morgan Stanley said in a research note released yesterday.
The central bank took 4 billion shillings ($46 million) of seven-day repurchase agreements out of bids of 7 billion shillings, having offered 4 billion shillings for sale. The repos are used by the regulator to withdraw money supply from banks and support the shilling.
The Ugandan shilling weakened 0.3 percent to 2,672.39 a dollar, while Tanzania’s shilling gained 0.2 percent to 1,600 a dollar.