Kenyan shilling hits 2013 peak as investor bet on calm vote

Feb 28, 2013, 11:24 AM EST
People are seen in a market place next to a campaign billboard advertising presidential candidate Raila Odinga (L) and his running mate Kalonzo Mosyoka in Nairobi on February 27, 2013.
AFP/Getty Images

By Kevin Mwanza and Beatrice Gachenge.

The Kenyan shilling rallied on Thursday for a sixth session to trade at its strongest level so far this year, as investors hoped Monday's elections would prove peaceful.

The shilling has now rallied 2.4 per cent in the past six sessions, wiping out losses made earlier this year when importers stockpiled dollars before the vote.

Worries about a return of the bloodshed that followed the last poll in 2007 have eased as candidates and officials have promised a peaceful vote.

"The risk premium on the Kenyan elections has fallen," said Raphael Owino, assistant general Treasury manager at Commercial Bank of Africa. "The way it's going, the shilling is likely to trade at 85.00 and below if the elections go well."

The shilling is now 0.3 per cent stronger to the dollar since the start of the year, although some businesses are still cautious.

Nairobi's benchmark stock index has risen 9.2 per cent this year, helped by strong earnings.

At 1045 GMT, Thomson Reuters data posted the shilling at 86.05 per dollar, giving up some of its gains after it firmed 0.8 per cent during the session to strike an intraday high of 85.60 last reached on Dec. 27.

Monday's closely contested presidential vote is the first since President Mwai Kibaki's re-election in 2007, a win that prompted opposition accusations of rigging and unleashed weeks of inter-tribal fighting that killed more than 1,200 people.

Chris Mugia, a senior trader at Kenya Commercial Bank, said the shilling had retraced some gains on interbank activity, as commercial banks covered their short dollar positions.

Front-runners Prime Minister Raila Odinga and former Finance Minister Uhuru Kenyatta are neck-and-neck in the polls. If no candidate wins an absolute majority, the vote will go to a decisive run-off in April. 
The central bank has been intervening to support the shilling by mopping up excess liquidity from the money markets on an almost daily basis, while occasionally selling dollars to banks.
Market players said a smooth handover of power could boost the shilling further, though gains could be checked as importers resume full operations after the vote.

On the Nairobi Securities Exchange, shares in sugar grower and miller Mumias tumbled 19.2 per cent to 4 shillings a share after it warned on Wednesday that its full-year profits will fall more than 25 per cent.

Two banks, Equity Bank and Co-operative Bank, posted big profit jumps. Equity said its 36 per cent profit rise was above its own expectations. 
Shares in Equity were up 1.79 per cent to 28.50 shillings per share, while Co-operative Bank gained 2.2 per cent to 13.80 shillings after the announcement. Equity Bank is now 17 per cent up on the year, one of the top performing banks listed in the main index.