Shilling Firms Against the U.S. Greenback

Business Daily (Nairobi)

16 June 2011

The Shilling firmed against the dollar Wednesday helped by off-shore selling of the greenback and traders said the Kenyan currency was still under pressure from the energy and food sectors.

Commercial banks quoted the Shilling at 89.20/30 against the dollar — after touching a high of 89.00/10 earlier– stronger than its Tuesday close of 89.35/45.

“The Shilling has been boosted by off-shores selling dollars in early trade. We are likely to see some corporate demand push it lower though,” said Mr Dickson Magecha, a senior trader at Standard Chartered Bank.

Traders said they expected the Shilling to trade in the 88.50-89.50 range against the dollar in the days ahead, after it hit an all-time low of 89.80/90 on Monday.

“The energy sector, the looming food importation and huge corporate transactions could continue undermining the shilling,” said Bank of Africa in a daily report.

“However, the shilling could get a reprieve on the back of rising interest rates.”

Investors

The average yield on the 91-day Treasury bill rose to 9.016 percent at auction last week, while 182-day paper surged to 9.949 percent from 5.444 percent previously.

High bond yields are expected to attract foreign investors, which could help the shilling strengthen.

The 14-day and 50-day simple moving averages show the shilling under pressure in the near term.

The Central Bank of Kenya yesterday said it planned to mop up Sh1 billion through repurchase agreements and it would stay out of the foreign exchange market.

Meanwhile, a decline in fuel prices in Kenya this month will help policymakers’ efforts to fight inflation and soothe volatility in the exchange rate, the country’s central bank governor said.

On Tuesday, the energy regulator cut pump prices of kerosene, petrol and diesel, off the back of lower prices of crude oil in global markets and the elimination of taxes on kerosene at home.

The reduction gave rise to hopes that inflation, which reached 12.95 percent in May, might finally start to be ease.

“This will complement our efforts on fighting inflation and stabilising the exchange rate. Continued high inflation is bad for growth and bad for the poor, too,” Prof Njuguna Ndung’u said on Tuesday.”The poor tend to pay a higher price in a crisis like this.” -Reuters

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