The Kenyan shilling has extended its weakening streak as it comes under pressure from dollar demand by importers, reaching within kissing distance on the 100 mark.
Yesterday, the local currency touched a three-and-a-half-year low of 99 to the US dollar against Wednesday’s close of 98.40 with traders projecting it would remain under pressure in the next few days.
Today, the local eased a bit due to dollar demand from importers but was expected to be stronger than the lows it hit a day earlier, helped by the lingering effects of a central bank dollar sale.
Commercial banks quoted the shilling at 97.75/85 to the dollar from 97.50/70 at today’s close.
The central bank sold an undisclosed amount of dollars in the latter part of Thursday’s session, buoying the shilling from a low of 98.95/99.05, a level last seen in Nov. 2011.
“Yesterday we saw a massive move. The dollar sales have helped,” a trader at one commercial bank said. “At these levels, it’s attracting demand. We had customers who were panicking at 98, 99. At 97, they are happy to buy.”
Traders said they forecast the shilling would trade in the 97.50 to 98.00 range in the next few days.
The Central Bank of Kenya (CBK) sought to re-assure the market of its desire to support the shilling by bringing forward by a month its policy-makers’ meeting to June 6, but did little to slow the weakening streak that the shilling has faced in recent weeks.
The shilling has lost 8.3% against the dollar this year fuelled by a stronger dollar, lower foreign exchange inflows caused by a slump in tourism and demand for imports such as capital goods.
There have been fears that some market traders have created an artificial shortage by hoarding dollars which the CBK acknowledged early this month.
Currency traders project that the shilling would remain under pressure over the next few days although tight liquidity in the market could cushion the extent of its weakening. The weighted average interbank lending rate rose to 13.17% on Wednesday night from 12.75% a day earlier, signaling tight liquidity.
Currency traders say persistent tight liquidity in the overnight lending market is expected to support the shilling in the immediate term.
(Additional reporting by Reuters)
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