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Kenya Shilling weakens as energy firms buy dollars

BUSINESS
By Standard Reporter and Reuters | July 16th 2015

The shilling weakened yesterday as oil companies bought dollars, taking advantage of a strengthening in the local currency on Tuesday after the Central Bank sold dollars. Shares finished lower.

At the close of trade, commercial banks quoted the shilling at 101.90/102.00 to the dollar, down from Tuesday's close of 101.45/65.

Traders said the shilling had gained after the bank sold an undisclosed amount of dollars on Monday and Tuesday to counter a fall in the shilling to a new three and half-year low of 103.85/95 to the dollar.

"I have seen oil companies buying (dollars). They are taking advantage. They had budgeted at a slightly higher rate of 102, 103. So the current rates are quite appealing for any buyer," a trader at one commercial bank said.

The shilling has been weakening this year, hurt by a widening current account deficit, a slump in exports and a decline in tourism after a spate of attacks by Somali Islamists.

CBK has hiked rates by 300 basis points in the last two months but the shilling has continued its downward spiral, worrying officials who fear this could lead to higher inflation. Last week, the Central Bank raised its policy rate by 1.5 percentage points to 11.50 per cent.

Rate hike

Standard Investment Bank (SIB) analysts said the 'hawkish rate hike' would only offer "temporal relief to the currency given persistent weakness in current account position and muted foreign capital inflows given current aversion of risk globally."

Traders said they forecast the shilling, which has lost 11 per cent against the dollar so far this year, will trade in a range of 101.50 to 102.50 for the next few days. "At these levels, there is still quite a bit of demand from corporates," a trader at a second commercial bank said.

Meanwhile, in the stock market, the benchmark NSE-20 share index edged down, losing 2.01 points to close at 4,690.16 points. Shares have been under pressure in recent months as investors sought safety in cash or assets in developed markets. In the debt market, bonds worth Sh150 million were traded, down from the previous day's Sh286 million.

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