Fred Aminga @faminga
The shilling continued to weaken against the US dollar yesterday to hit 104.05/20 causing market ripples. It is the lowest level in almost two years, a streak that has continued, having hit a 20-month low against the dollar on Monday.
This is even as foreign-listed Eurobonds plunged Monday following the arrest of National Treasury Cabinet Secretary Henry Rotich over the Arror and Kimwarer dams scam.
Reuters news agency reported that Kenya’s sovereign bonds prices slid by 0.5 cents in the dollar (Sh5) in what was seen as a reaction to announcement of Treasury Cabinet secretary Henry Rotich arrest.
The shilling has lost 0.8 per cent since the CS and his Principal Secretary Kamau Thugge were arrested on Tuesday.
Acting capacity
Analysts attribute this to reactions of change of guard as President Uhuru Kenyatta appointed Labour Cabinet Secretary Ukur Yattani in an acting capacity.
Most analysts said banks had shored up dollar reserves in what has led to further weakening of the shilling, in a rally which started last week.
They said the jitters could have informed reactions from foreign investors, some of whom developed cold feet over Kenyan assets, leading to the slid.
“The Market is repricing political risk higher. The key chart level is Sh105.50, a break of which would be very worrisome,” said financial analyst Aly Khan Satchu.
A slide of such magnitude against the US dollar was last seen in November 2017, however, other capital markets indicators did not move much after the Rotich arrest.
Speaking to People Daily, Amana Capital Chief Investment Officer Reginald Kadzutu, however, said there could be excess liquidity in the market which is being mopped up.
He doubted it had much to do with the changes at the Treasury.
“Changes at Treasury should hardly have much impact on the shilling, and if at all, it would be very minimal,” he said, adding that the Central Bank of Kenya has been a bit cagey on the amount of shillings in circulation.
Independent analyst John Kirimi said the drop in Eurobond prices indicates higher costs of debt hence budget must allocate more to settle higher interest payments.
Good news
“The drop in the yields (interest rates) on the Eurobonds may appear harmful to the economy in the short run, but overall, if it continues that would be good news for the economy and the taxpayer,” he said.
This is because higher yields are some of the factors that attract foreign investment in bonds. Seasonal demand for dollars from companies to pay dividends to their overseas shareholders had also contributed to the pressure on the shilling
The shilling pared some of its losses in the afternoon session and after Njoroge’s remarks, to trade at 103.60/80 per dollar.
Additional report Reuters
