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Kenya shilling breaks 7-day rally, stocks fall

14 November 2011, 17:41

Nairobi - The Kenyan shilling reversed early gains on Monday as banks booking profit on the currency's recent rally bought dollars, while stocks fell one percent amid fears living costs are expected to keep rising.
The shilling, which rallied 3.8 percent last week, has recovered almost 13 percentage points from its record low of 107 hit on Oct. 11, after the central bank raised its key lending rate sharply to combat inflation and exchange rate volatility.   

At the 1300 GMT market close, commercial banks quoted the shilling at 93.60/80 against the dollar -- after touching 93.00/20 in early trade -- weaker than Friday's close of

"The shilling has lost on the back of interbank profit taking. The move from 97 was without any pause and we were bound to correct at some point," said Dickson Magecha, a trader at Standard Chartered Bank.

Traders said they still expected the shilling to strengthen further, supported by tight liquidity in the money market, reduced importer dollar demand and greenback inflows, in particular from the tourism, horticulture and tea sectors.    

The shilling might break through the psychological 90 level - last touched on July 26 - by the end of the week.

Tight shilling liquidity has seen the interbank rate hitting a high of 30.6687 percent on Friday from 30.0593 percent on Thursday.

"Sentiments still remain for a stronger shilling mainly due to the tightness and importers are out of this market for now," said Kennedy Butiko, deputy head of treasury at Bank of Africa.

At the Nairobi Securities Exchange, the benchmark NSE-20 Share Index fell 1.03 percent to 3,387.51 points, extending its losses to a two-week low.   

"Its a correction of the price rally we had seen before, mainly due to weak economic data including the high inflation rate and rising interest rates," said Renaldo D'souza, an
analyst at Genghis Capital.

"With rising fuel prices, investors expect cost of living to keep going up."

Kenya raised its fuel prices yet again on Monday, mostly due to a weakening local currency and high global crude oil prices, adding to the inflationary pressure.    

Kenyan stocks have lost 22.8 percent so far this year, battered by the high rate of inflation - 18.91 percent in October - , an ailing shilling and dampened appetite for
riskier frontier markets.   

Shares in Kenyan retailer Uchumi fell 5.88 percent to 8.00 shilling, a nine-week low as investors sold the stock on expectation its growth could slow down on rising consumer
prices, D'souza said. 

In fixed income, corporate and government bonds worth 1.28 billion shillings ($13.7 million) were traded, down from 2.58 billion shillings on Friday.

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- Reuters

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