Kenya’s financial markets went into panic mode today as the shilling weakened to a three-and-a-half year low, hitting the 100 level against the dollar for the first time since October 2011.
Traders said the shilling started weakening in early trade due to concerns of a widening current account deficit and on a stronger dollar globally after Greeks voted against bailout conditions demanded by their creditors.
“It’s because of the Greek vote. The Greek vote caused the Euro to go down, or rather it caused the dollar to strengthen globally,” a senior trader at one commercial bank told Reuters.
At 0757 GMT, commercial banks quoted the shilling at 99.95/100.15 to the dollar, compared with Friday’s close of 99.70/80. It had earlier hit 100.05/15.
On Friday, the Kenya National Bureau of Statistics said the current account deficit widened to Ksh101.5 billion in the first quarter of this year from a deficit of Ksh63.8 billion in first quarter of 2014.
“I have seen some information on the current account widening even further.When we see such news it tells you that the theme (weakening shilling) is going to continue. It’s just people taking positions based on news,” the senior trader said.
Central bank said it planned to mop up Ksh24 billion ($240.00 million) in excess liquidity from the money markets. CBK uses repurchase agreements (repo) and term auction deposits (TAD) to absorb the liquidity, which makes expensive to hold dollars, which in turn contributes to a stronger shilling.
The shilling is still trading off an all-time low of 107 it hit in October 2011.
