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Category: Diaspora News

Written by Kim

NAIROBI Oct 6 (Reuters) - The Kenyan shilling continued to edge up against the dollar on Thursday, after the central bank shocked the market with a 4 percentage point rise in its lending rate the previous day to combat rampant inflation and stabilise the exchange rate.

At 0622 GMT, commercial banks posted the shilling at 100.70/101.30 against the dollar, slightly up from Wednesday's close of 101.00/101.50. The currency rose by around a shilling per dollar on Wednesday after the rate shock.

"I expect a rally maybe towards the 100 level," said a senior trader with a leading commercial bank.

Policymakers raised the Central Bank Rate by 400 basis points at a rate-setting meeting on Wednesday to 11 percent, just three weeks after they raised it by 75 basis points.

The shilling has borne the brunt of higher oil and food prices in international markets this year, tumbling to several record lows against the dollar since March.

The situation was compounded by a row between markets and central bank over how to deal with the challenge, as well as by the effects of the debt crisis in the euro zone.

Traders said even though the increase was a positive move, attention needed to shift towards addressing a widening balance of payments gap, to stave off further weakening of the shilling.