Shilling weakens as firms buy dollars before Budget speech

The shilling lost ground against the dollar on Thursday, after companies bought the U.S. currency to avoid excessive exposure to the shilling. [PHOTO: FILE]

NAIROBI, Kenya: The shilling lost ground against the dollar on Thursday, after companies bought the U.S. currency to avoid excessive exposure to the shilling over concerns about how the government would fund its new national budget.

At 0750 GMT, the shilling traded at 87.90/88.00 to the dollar, weaker from Wednesday's close of 87.70/80.

The shilling has been on the back foot and has fallen nearly 2 percent against the dollar since January.

Finance Minister Henry Rotich is scheduled to present the government's 2014/15 annual budget that runs from July 1 after 1200 GMT, offering markets a broader guide to the direction of east Africa's biggest economy.

Kenya's budget is set at about Sh1.8 trillion shillings (USD20 billion) but traders said there were concerns about how the Government would raise that money. Rotich will include the latest guidance on growth, inflation and borrowing projections.

Joshua Anene, a Commercial Bank of Africa trader, said companies were being cautious just ahead of the budget, and were buying foreign currency.

"They are buying (foreign) currencies before the budget as no one knows what will be in the details," Anene said.

"Ahead of such a big risk event you try to stay square."

Traders have said previously that if Kenya secures strong demand for its debut Eurobond, which it is now marketing to investors abroad, the shilling could get a boost.

However, the budget speech may throw up surprises and the market was being cautious.

A draft statement of revenue estimates for 2014/15 published on the Treasury's website in May showed that Kenya plans to increase state revenue by 22 percent in the new fiscal year and raise spending on agriculture, roads, ports and energy supply to expand the economy.