Money Markets
By GEOFFREY IRUNGU
The shilling strengthened slightly Wednesday after
the Central Bank of Kenya (CBK) maintained the policy rate at 11.5 per
cent on Tuesday.
Thomson Reuters data showed the currency closed selling at
105.50 units to the dollar compared to Tuesday close of 105.80 – 30
cents stronger.
However in the course of trading on Wednesday, the
shilling weakened to 105.75 units to the greenback at the lowest and
105.20 units at the highest.
At the opening of markets Wednesday morning, CBK
data showed the local currency traded at 105.56/66, a stronger position
than the previous day’s close of 105.70/80. But it strengthened further
by the time markets closed.
CBK’s Monetary Policy Committee (MPC) – which sets
the benchmark rates – has held the Central Bank Rate (CBR) at 11.5 per
cent since July.
The MPC justified the action saying overall
inflation remained close to the five per cent target and there was
adequate foreign exchange support.
The rate-setters argued that the current level of
Sh655 billion ($6.2 billion) in forex reserves and the Sh65 billion
($610.7 million) so far approved for the country by the International
Monetary Fund (IMF) offered support to the shilling.
However, Standard Chartered Africa Research
managing director Razia Khan said in a statement that the CBK may have
to tighten further before the end of the year if food prices rise and
the global conditions worsen.
The US Fed is expected to raise interest rates before the end of the year, having delayed the action in its meeting last week.
“The CBK is concerned about the potential pressure
on food prices as a result of El Nino rains, as well as further Kenya
shilling volatility on the back of global events. Given this, we still
think there is room for a rate hike of 50 bps in November, should global
pressures on the Kenya shilling resurface,” said Ms Khan.
An increase of 0.5 percentage points would bring the CBR to 12 per cent.
In its statement on Tuesday, the MPC said the
pressure on the exchange rate seen in August and early September had
mostly come from recent global events, including the devaluation of the
Chinese yuan and the strengthening of the dollar
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