Shilling slips precariously on Tuesday

Posted by MICHAEL KARANJA on August 9, 2011

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NAIROBI, Kenya, Aug 9 – Fresh lows for the shilling continued on Tuesday, trading at Sh94.09 against the dollar as of 10.15am in the morning trading session.

Having closed Monday trading at 93.40, the shilling slid further against the dollar as demand pressures persisted.

Currency traders from Commercial Bank of Africa (CBA) said this had strained the shilling to new lows since the demand was not supported by similar aggression on the supply side.

“This situation is not just unique to Kenya but all emerging markets with their currencies growing weaker,” Duncan Kinuthia of CBA’s Treasury Department told Capital Business.

He said there was a lot of panic-buying in the market, which saw the shilling slide into the Sh94 zone. He was however optimistic the market would correct itself.

“Things are not rosy at the moment but we expect some correction later on in the day,” he said.

Last week, demand for the dollars was being driven from the import and telecoms sector. This coupled with relief agencies scrambling to buy dollars to purchase relief foods for the most affected regions.

The Central Bank has been under immense pressure to correct the weakening shilling. Its decision to hold its benchmark lending rate at 6.25 percent has however raffled many feathers, with some analysts suggesting the bank was not doing enough.

“The MPC (Monetary Policy Committee) has been getting it wrong all year. It is not committed to raising interest rates even when market indicators suggest that is what is needed to correct the situation,” Rich Management Chief Executive Officer Aly-Khan Satchu said on phone with Capital Business.

On Monday, CBK Governor Prof Njuguna Ndung’u indicated that MPC was considering limiting the amount held by banks in forex reserves in an effort of strengthening the shilling.

Also under consideration is the diversification from the US currency for imports, but Prof Ndung’u said this would happen if it would help the Kenyan economy remain viable.

Forty percent of imports into Kenya are traded in dollars.