Kenyan shilling firms after CBK intervenes

A fuel attendant handles Kenyan shilling notes at a petrol station in the capital Nairobi March 15, 2011. REUTERS/Noor Khamis 

By (Reuters)
 

 

Kenya's central bank intervened in the foreign exchange market for the first time in four months on Thursday, traders said, propping up a local currency that has dipped since investor relief at a peaceful national election faded.

The bank sold dollars directly and said it would mop up 12 billion shillings as part of regular transactions designed to make it more expensive for investors to hold long dollar positions.

The shilling had hit an eight-week low of 85.25/45 per dollar early on Wednesday, having dropped 1.7 per cent since May 21 due to strong demand for hard currency from importers.

(Read: Kenya shilling extends fall as importers seek dollars)

That run has threatened to wipe out the shilling's gains since the March 4 election. It remains 1.2 per cent stronger against the dollar so far in 2013 but is widely expected to weaken by year-end, pressured by Kenya's persistently high current account deficit.

The shilling strengthened to 84.90/85.10 after traders reported the central bank as active in the market. They did not specify the amount of dollars it sold, and the bank's chief dealer declined to confirm it had intervened.

The intervention was the first since January 25.

"Shilling depreciation is inevitable because of the current account mismatch, but the central bank wants it to be paced," said Peter Mutuku, head of trading at Bank of Africa.

The current account deficit stands at above 12 per cent of GDP, driven by increased local demand for imports, having stood above 10 per cent since 2011.

A Reuters poll of eight analysts and traders gave a median forecast of 88.00 shillings per dollar by the end of this year.

Some traders also said the central bank might be eventually be tempted to reverse course on a cycle of interest rate cuts that has seen it cut borrowing costs by 950 basis points since July 2012 to support the economy.

"We could see interest rates go back up but that is a last resort because they (central bank) are keen on growth at the moment," said a trader at one commercial bank.