The Kenyan shilling’s foreign exchange rate lost ground against the US dollar on Wednesday after the acting Finance Minister Robinson Githae said the Central Bank should prevent the local currency from appreciating beyond 82 per US dollar, traders said.
Githae told Reuters he wanted a stable exchange rate and not the volatile swings that sent the local currency lurching from one record low to another last year before a sharp rally, brought on by a tightening of monetary policy.
“The shilling’s weakness this morning seems to suggest a reaction by the market to the finance minister’s statement that the Government prefers a slightly weaker shilling,” said Kennedy Butiko, deputy head of Treasury at Bank of Africa.
At 0630 GMT, commercial banks quoted the shilling at 82.95/83.15 against the dollar, weaker than Tuesday’s close of 82.75/95.
Traders said the minister’s comments were negative for the shilling and would make investors think twice about investing in the country.
“You don’t want to hear there is an official policy of defending the currency,” said a trader, who did not wish to be named said.
Traders said inflation, which eased for the third straight month to 16.7 percent in February from 18.3 percent in January, may also be negative for the local currency as it will boost expectations of monetary easing.
The Kenyan shilling has been receiving support from the high interest rates since Kenya’s central bank ramped up its key lending rate to 18 percent at the end of 2011.