Shilling weakens as firms buy dollars before Budget

NAIROBI, KENYA: The shilling lost ground against the dollar yesterday, after companies bought the US currency to avoid excessive exposure to the shilling over concerns about how the Government would fund its new national Budget.

At the opening of trade, the shilling was quoted at 87.90/88.00 to the dollar, weaker from Wednesday’s close of 87.70/80.

The shilling has been on the back foot and has fallen nearly 2 per cent against the dollar since January.

National Treasury Cabinet Secretary Henry Rotich started presenting the Government’s 2014/15 annual Budget that runs from July 1 after 3pm, offering markets a broader guide to the direction of east Africa’s biggest economy. Kenya’s Budget is set at about Sh1.8 trillion ($20 billion) but traders said that there were concerns about how the Government would raise that money. Rotich included the latest guidance on growth, inflation and borrowing projections.

 Joshua Anene, a Commercial Bank of Africa trader, said companies were being cautious just ahead of the Budget, and were buying foreign currency. “They are buying (foreign) currencies before the Budget as no one knows what will be in the details,” he said, adding that, “Ahead of such a big risk event you try to stay square.”

 Traders have said previously that if Kenya secures strong demand for its debut Eurobond, which it is now marketing to investors abroad, the shilling could get a boost.

SOVEREIGN BOND

Rotich has described the interest in the bond from investors as ‘indeed serious’. The publicity campaigns to showcase the country’s first ever-sovereign bond to the international investors kicked off in US last week.

“After the road shows in the US, the National Treasury team will proceed to London,” said Rotich. The Cabinet Secretary said there may also be road shows in Germany and Middle East before the expected end of the campaign by June 15. However, the fear was that the Budget Speech could throw up surprises and the market was being cautious.

A draft statement of revenue estimates for 2014/15 published on the Treasury’s website in May showed that Kenya plans to increase State revenue by 22 per cent in the new fiscal year and raise spending on agriculture, roads, ports and energy supply to expand the economy.

The Central Bank, which has regularly mopped up liquidity via repurchase agreements to make it costly for traders to bet against the shilling, soaked up Sh5 billion via repos on Wednesday.