Kenya economy, exchange rate fundamentals sound: central bank
Date: Monday, June 07, 2010 @ 17:30:28 CDT
Topic: RavenNuke(tm)

NAIROBI (Reuters) - The fundamentals of Kenya's economy and the shilling's exchange rate are sound and the local currency's movements are due to events in international markets, the central bank said on Monday.

"The current movements in the shilling against other currencies are as a result of international market developments not related to Kenya," the bank said in a statement.

"While the shilling is weakening against the dollar, it is strengthening against the euro locally. This reiterates that fundamentals of Kenya exchange rate and the economy are sound."

On Monday, the shilling hit a new five-year low, touching 82.20/30, due to rising risk aversion globally and increased demand for the dollar and perceived pre-budget jitters.

Central bank said its policy stance on the shilling's exchange rate -- meant to absorb any external shocks to the economy -- was unchanged.

"Once the volatility in the international market is stabilised and uncertainty in the euro zone is resolved, the shilling will rediscover its path consistent with the fundamentals," it said.


The bank reiterated that the upside risks to inflation were low, but said it was keeping an eye on oil prices.

"The risk that might emerge from higher oil prices in the international market will be mitigated from lower food prices and lower hydro generated electricity prices," it said.
While the Kenya's current account deficit was high at about 6.5 percent of GDP, it was sustainable, helped by recovery in sectors like tourism and remittances, less food imports and higher exports to Far East and the East African Community.

"The bumper harvest Kenya has had this year implies less foreign exchange will be used for food imports," it said.

It said its gross foreign exchange reserves stood at over $3.7 billion at the end of May, which met the statutory requirement of four months of import cover.

The bank said the government's fiscal deficit was in check and that debt to GDP ratio stood at 44 percent, compared with Greece's 115 percent of GDP.

"The confidence in the government fiscal position is supported by a continued reduction on yield of securities," it added.

The yield on government paper has been on a general decline in recent weeks, with that of the 91-day Treasury bill at 3.49 percent at its latest sale from over 7 percent last year.


This article comes from The kenya

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