Kibaki call for forex support expected to buoy shilling
President Kibaki has warned that short term financial gains by unscrupulous market players would have long term consequences on the economy. Photo/PHOEBE OKALL | FILE
Currency dealers expect the shilling to appreciate against the dollar this week, as President Kibaki’s call for an urgent disbursement of IMF forex support loan builds market confidence.
On Friday the shilling weakened slightly as importers mainly from the oil and telecommunications sectors bought dollars to fund imports.
The President’s directive to the Central Bank of Kenya (CBK) to deal firmly with speculators would support the currency, dealers said. Mr Robert Gatobo, a dealer at Bank of Africa, said Friday’s slight weakening of the shilling-— which was quoted at between Sh94 and Sh94.20 in the afternoon, should not be seen as an indication of further depreciation as “CBK was watching the market”.
“The sentiments are positive towards the shilling becoming stronger,” said Mr Gatobo who added that he does not expect the currency to weaken further against the dollar.
Last week the banking regulator announced that its policy setting organ — the monetary policy committee (MPC) —would hold an unscheduled meeting on Wednesday with analysts expecting the committee to recommend measures that will tame inflation and give the shilling additional support.
Tsavo Securities managing director Fred Mweni said he expects the shilling to appreciate if the MPC kept interest rates at their current level because any changes would add confusion into the market.
“If the MPC keeps things stable I am expecting the shilling to appreciate,” said Mr Mweni who added that the CBK was in a “catch-22” and increases in interest rates would hurt economic growth.
According to the CBK data, the shilling has depreciated by almost 16 per cent to an average of Sh93.71 against the dollar since the beginning of the year and last week the banking regulator sold an undisclosed amount of foreign currency to shore up the local currency.
Mr Kibaki said on Thursday the government had requested an additional disbursement from the International Monetary Fund (IMF) under the Extended Credit Facility to deal with stabilise the currency.
“We expect the disbursement to be front loaded to ensure ample supply of foreign exchange to finance required imports without putting pressure on the shilling exchange rate,” said the President at the bell ringing ceremony to launch the trading of British American shares.
Mr Kibaki said financial regulators “must deal firmly with speculators who may seek to take advantage of the current situation” and that the State would ensure there is orderly trading in the money markets for liquidity and foreign exchange.
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