NAIROBI: The Kenyan shilling held on Friday within touching distance of a ceiling sketched out by the country's acting finance minister as a funding squeeze worsened with interbank rates heading higher for a sixth straight day.
At 0751 GMT, banks quoted the shilling at 82.70/90 per dollar, barely moved from Thursday's close of 82/65.85.
"Tightness (of liquidity) remains a key factor in the market with the interbank rate nearing 25 percent," said Duncan Kinuthia, head of trading at Commercial Bank of Africa.
The weighted average interbank interest rate rose to 24.7 percent on Thursday from 24.0 percent on Wednesday, and 22.3 at the start of the month, driven up by banks scrambling for liquidity.
The rising rates for bank-to-bank transactions, which offer banks high returns from lending out shillings, also make them less inclined to hold dollars, thereby supporting the local currency.
Interest rates soared in the last quarter of 2011 after policymakers embarked on an aggressive tightening round to curb foreign exchange volatility and fight inflation.
The central bank's rate-setting committee held the policy rate at 18 percent when they met on March 6, citing a balance of payments position that was still precarious.
Traders said the sale of a one-year bond worth 10 billion shillings ($121 million), which opened on Friday, could offer further support to the shilling as foreign investors flock in, pulled by high yields.
Acting Finance Minister Robinson Githae told Reuters last week he had instructed the central bank to prevent the shilling from appreciating beyond 82, to cushion exporters' earnings.
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