Kenya blames speculators for weak unit
Mar 14, 2011
THE Kenyan shilling’s weakness is an over-reaction and driven by speculation that there are not enough foreign exchange reserves to meet the country’s needs, the central bank governor said on Friday.<br>
THE Kenyan shilling’s weakness is an over-reaction and driven by speculation that there are not enough foreign exchange reserves to meet the country’s needs, the central bank governor said on Friday.
Traders however said that there was fundamental demand from importers.
The shilling touched 85.80/90 on Friday, after weakening 1.78% in the session -- the biggest intraday drop against the dollar since May 19, 2010.
“The current movements on the exchange rate would appear to be an over-reaction and speculation mainly driven by expectations of future shortages due to oil price movements and the political turbulence in North Africa,†said Governor Njuguna Ndung’u.
“Speculators, desirous of creating an artificial shortage should note that the foreign exchange reserves position far exceeds the capacity of such
speculative positions,†he said.
“Therefore, these speculations on the US dollar position have no basis.â€
Ndung’u said total foreign reserves held by the Central Bank of Kenya and commercial banks stood at $5.16b at the end of February.
“As has been previously pointed out, the economic fundamentals have not changed and remain healthy, hence the economy should, as it has in the past, ride out these temporary volatilities,†he said.
One trader said he thought the move to current levels was on real demand.
He said there was not much in terms of dollar inflows and importers were coming in to cover themselves.
“There may be some speculative aspect, but this move is more of panicking by importers,†said Steve Lagat at CFC Stanbic Bank.
“Even as the shilling weakens, we’ve not seen the usual exporters selling.â€
Traders say there were buyers picking up dollars out of fear the shilling would weaken even further.
Technical analysis shows the shilling weakening could pause at 86.00 unless the dollar gains versus regional currencies in which case the Kenyan currency could plunge as low as 90.00.
Charts put it on a long-term downtrend.
Meanwhile, in a non-related development, Dubai’s sovereign wealth fund, Investment Corporation of Dubai (ICD) has asked banks to submit proposals on a new $4b, five-year loan refinancing, banking sources said on Friday.
The loan, which is the largest to emerge from Dubai since its financial crisis, will refinance existing debt including a $6b loan, some of which is due to mature in 2011, a senior loan banker close to the deal said.
ICD could not immediately be reached for comment. “ICD has issued a draft term sheet and banks have received it but there is no pricing or terms yet,†the senior banker said.
ICD’s group of 10-12 lenders have been asked to respond to the request and attend a meeting scheduled for next week to discuss the proposals, two bankers said.
Bankers said that some banks could struggle with the five-year maturity requested in light of recent political instability in the Middle East and Dubai’s 2009 debt default.
“This is a difficult deal, there is no easy answer. Five years is too long, three years would be better.
“ICD is not rated -- this is a tall order and a big ask,†the senior banker said.
Reuters
Traders however said that there was fundamental demand from importers.
The shilling touched 85.80/90 on Friday, after weakening 1.78% in the session -- the biggest intraday drop against the dollar since May 19, 2010.
“The current movements on the exchange rate would appear to be an over-reaction and speculation mainly driven by expectations of future shortages due to oil price movements and the political turbulence in North Africa,†said Governor Njuguna Ndung’u.
“Speculators, desirous of creating an artificial shortage should note that the foreign exchange reserves position far exceeds the capacity of such
speculative positions,†he said.
“Therefore, these speculations on the US dollar position have no basis.â€
Ndung’u said total foreign reserves held by the Central Bank of Kenya and commercial banks stood at $5.16b at the end of February.
“As has been previously pointed out, the economic fundamentals have not changed and remain healthy, hence the economy should, as it has in the past, ride out these temporary volatilities,†he said.
One trader said he thought the move to current levels was on real demand.
He said there was not much in terms of dollar inflows and importers were coming in to cover themselves.
“There may be some speculative aspect, but this move is more of panicking by importers,†said Steve Lagat at CFC Stanbic Bank.
“Even as the shilling weakens, we’ve not seen the usual exporters selling.â€
Traders say there were buyers picking up dollars out of fear the shilling would weaken even further.
Technical analysis shows the shilling weakening could pause at 86.00 unless the dollar gains versus regional currencies in which case the Kenyan currency could plunge as low as 90.00.
Charts put it on a long-term downtrend.
Meanwhile, in a non-related development, Dubai’s sovereign wealth fund, Investment Corporation of Dubai (ICD) has asked banks to submit proposals on a new $4b, five-year loan refinancing, banking sources said on Friday.
The loan, which is the largest to emerge from Dubai since its financial crisis, will refinance existing debt including a $6b loan, some of which is due to mature in 2011, a senior loan banker close to the deal said.
ICD could not immediately be reached for comment. “ICD has issued a draft term sheet and banks have received it but there is no pricing or terms yet,†the senior banker said.
ICD’s group of 10-12 lenders have been asked to respond to the request and attend a meeting scheduled for next week to discuss the proposals, two bankers said.
Bankers said that some banks could struggle with the five-year maturity requested in light of recent political instability in the Middle East and Dubai’s 2009 debt default.
“This is a difficult deal, there is no easy answer. Five years is too long, three years would be better.
“ICD is not rated -- this is a tall order and a big ask,†the senior banker said.
Reuters