Markets & Finance

Kenya shilling hits record low 107 vs dollar

Kenya's shilling hit a record low against the dollar on Tuesday, tumbling 3 percent as importers snapped up the greenback and banks moved to close bets on a recovery after last week's 4 percentage-point hike in interest rates.

The shilling, which has fallen 25 percent against the dollar so far this year, has lurched from one record low to another, first sinking to 106.2 and then hitting an intra-day low of 107 in the next settled trade 18 minutes later, Thomson Reuters data showed.

Traders said importers had been sitting tight on orders for dollars after the central bank said on Sept. 27 that it would trade foreign exchange directly with end customers, bypassing commercial banks.

This had fuelled expectations the central bank would be selling dollars direct to the market at a favourable rate.

But last Friday, a technical team set up by Prime Minister Raila Odinga said Kenya was committed to a free floating exchange rate.

"Corporates that were holding back, hoping that the (central bank) would meet their dollar demand as it had earlier indicated, are now buying after the Prime Minister's team said (the regulator) would not be selling," said a senior trader at a commercial bank.

"Once these tickets are filled, we could consolidate at a higher level." At 1030 GMT, leading commercial banks quoted the shilling at 106.40/60 compared with Monday's close of 103.50/104.00.

The shilling, among the world's worst-performing currencies this year, had seen some respite after the Central Bank of Kenya ramped up its key lending rate by 400 basis points to 11 percent in a bid to stabilise the battered currency and cap consumer prices.

Analysts had said the huge interest rate hike would be a big step towards restoring confidence in a regulator markets had feared lacked the mettle to tackle inflation and defend the shilling.

But they also said any improvement in the currency would be gradual.

Debt problems in the euro zone are clouding the outlook further, market players said.

With a lack of clarity in the market, traders said squared positions were the focus right now, with any sale of dollars to a client being covered through the interbank market, amid high volatility.

"Guys are covering short dollar positions and there is a bit of panic in the market," said a senior trader at one commercial bank. Market players said it was difficult to give technical levels as the shilling tumbled through uncharted territory.

"It's quite crazy out here. There is nothing to support the shilling at the moment," said a trader with another commercial bank.