Kenyan Currency Reserves Declined to $3.98 Billion

June 17  — Kenya’s foreign-exchange reserves fell to $3.98 billion this week from $4 billion last week, the Central Bank of Kenya said in its weekly bulletin.Commercial lenders borrowed 56.4 billion shillings from the central bank’s overnight window in the week to June 15, compared with 30 billion shillings last week, “reflecting tight liquidity conditions in the money market,” the Nairobi-based bank said in an e-mailed statement today.The average interbank rate in the period was 6.22 percent compared with 5.98 percent last week, it said.

– The Kenyan shilling lost earlier gains against the dollar on Friday after the central bank said it would stay out of the foreign exchange market and traders said the shilling could firm on tight liquidity.At 1012 GMT, the shilling was quoted at 89.90/90.10 against the dollar — weaker than its earlier Friday level of 89.60/80 — and the same level it closed at on Thursday, when in touched a record low of 90.85 to the dollar.

The Central Bank of Kenya said it was in the market to mop up 1 billion shillings through repurchase agreements or repos — which basically tightens the shilling’s liquidity in the market.The bank has twice this week sought to mop up shillings through repos, but did not achieve this aim after one did not receive bids from commercial banks and the other central bank turned down all the bids.”Liquidity is a bit low in the market and we expect banks squaring off their positions ahead of the weekend to help the shilling,” said a trader at African Banking CorporationSome traders said the central bank was sending mixed signals to the market by mopping up shillings through repos, but still lending out more money through the overnight window.

The shilling fell 2.48 percent to its intra-day low of 90.85 before clawing back some losses as banks took profits to close at 89.90/90.00 on Thursday.Traders said comments made on Friday by Kenya’s Finance Minister Uhuru Kenyatta that Treasury was closely watching the shilling but would not intervene had had no effect on the local currency.

Analysts say Kenya’s central bank may need to do more than increase interest rates to counter a vicious inflation shock that has driven a 10 percent slide in the shilling this year. They say a pause in controversial purchases of hard currency from the market may be needed to turn sentiment around in the short term.”We expect today to be slow on liquidity issues. At this level the prices are a bit restrictive and only clients that must trade will be in the market,” said Jeremiah Kendagor, head of foreign exchange at Kenya Commercial Bank.

Meanwhile:

Ethiopia plans to purchase tanks from Ukraine, a government spokesman said, without providing details.The vehicles are necessary to protect the country from hostile forces such as its Horn of Africa neighbor Eritrea, Shimeles Kemal said in a phone interview today. Eritrea and Ethiopia fought a 1998-2000 border war that killed 70,000 people, according to Brussels-based International Crisis Group.

“Ethiopia is doing its level best to achieve rapid development in all aspects,” Shimeles said from Debre Zeit, Ethiopia. “This is among other things, building the national defense system and ensuring the safety of its people and preserving its territorial integrity.”Ukrainian-based news agency Kommersant reported on June 10 that the deal included 200 tanks for about $100 million.Ethiopia plans to increase its national budget for the fiscal year beginning July 8, Shimeles said. Defense spending has only seen a “slight increase,” he said.

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