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British pound tumbles as CBK closely watches rate

The Kenyan shilling has strengthened significantly against the UK’s Sterling Pound as the Central Bank of Kenya (CBK) reiterates its readiness to tackle volatility resulting from Britain’s decision to leave the European Union. The pound fell further by six units to Sh133.18, an average recorded by most commercial banks in yesterday’s trading.

Last Friday, the British currency plunged by 10 units to Sh139.50 immediately after the country voted in favour of leaving the EU single market. “While the markets in Kenya operated normally last Friday, the CBK reiterates its readiness to intervene in the money and foreign exchange markets to ensure their smooth operations,” said CBK Governor Patrick Njoroge.

He spoke during the 2016 annual general meeting of the Bank for International Settlements in Basel, Switzerland over the weekend. The event was an occasion for central bank governors from around the world to discuss global financial developments and their implications.

The bank chiefs resolved to closely monitor financial markets to limit volatility, using contingency measures put in place by the Bank of England and other central banks. “They have pledged to cooperate closely and take necessary action to ensure the orderly functioning of the financial markets,” said Njoroge.

The euro was more stable against the shilling, falling marginally to 111.28 from 112.5 recorded on Friday. Performance of the shilling against the US dollar remained stable at 101.25, with investment analysts attributing it to cautious trading ahead of the uncertainty surrounding the Brexit vote.

“Kenya is likely to face capital flight as investors seek safe havens such as US treasuries and gold which may exert pressure on the Kenya Shilling in the short term,” financial advisory firm Cytonn Investments said in its weekly report. Kenya has high levels of foreign exchange reserves currently at $7.6 billion, equivalent to five months of import cover, which CBK said was enough to weather the shocks.

The Sterling Pound tumbled to its historic lowest yesterday, trading at 1.32 against the dollar, pushing the UK’s economy further towards recession. It fell 10 per cent in value just a few hours after the announcement that Britons voted for EU exit, levels last seen in 1985. Financial analyst Aly Khan Satchu said a 10 per cent foreign exchange move is “serious material to exporters into Britain.”

“Sterling was always expected to fall sharply if the UK was to vote for Brexit. I expect a move to 1.25 versus the dollar and around 127 for the shilling,” he said. He said the euro had suffered contagion and it is now a risk that the UK vote could become a “time bomb” beneath Europe.

Last Friday, the National Treasury assured the business community there is no cause for alarm regarding the aftermath of the UK’s exit from the European Union. Cabinet secretary Henry Rotich said whereas the move has consequences, Kenya has enough foreign exchange reserves to weather the storm.

“The government has enough foreign exchange reserves and a standby facility offered by the International Monetary Fund to cushion the country from any external and internal shocks,” he said.

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