East Africa shillings on back foot again

NAIROBI, Sept 1 – Kenya, Uganda and Tanzania’s shillings all look likely to weaken next week, possibly to life-time lows against the dollar, amid soaring inflation and strong demand for hard currency from fuel importers.  



Kenya’s shilling, which hit a record low of 95.10 against the dollar on Aug. 9, looks likely to weaken in coming days after the central bank changed its discount window rate rules, easing money market liquidity. The shilling traded at 94.00/20 against the dollar on Thursday, weaker than a close of 92.30/50 a week ago.

“We are seeing consistent corporate (dollar) demand and the inflows that are coming are not big enough to match that,” said Duncan Kinuthia, head of trading at Commercial Bank of Africa.

“Sentiment favours a weak shilling on the fact that liquidity has come back into the system.”

The bank’s discount window lending rate, which tumbled on Monday, fell again to 17.87 percent on Thursday and the interbank lending rate followed, diving to 19.2515 percent from 27.7299 percent. Traders said the shilling, which has hit a series of all-time lows this year, could trade in the 93.00-95.00 range against the dollar next week.

“We are expecting a weaker shilling. With the way central bank has reacted, we have seen liquidity improve but that is not helping the shilling. It could edge towards the 95.00 level,” said Wilson Mutai, a trader at African Banking Corporation.



The Ugandan shilling is seen flirting with its record low of 2,825 against the dollar as rocketing inflation and the prospect of more anti-government protests unsettle investors, traders said. Commercial banks in Kampala quoted the unit at 2,815/2,825, in line with last week’s close.

“The general gloomy conditions of relentless surge in inflation, political uncertainty and dimming growth prospects are increasing investor appetite for the dollar,” said Denis Mashanyu, a trader with Standard Chartered Bank Uganda.



Source: Reuters Africa newsletter

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