The Kenyan shilling strengthened on Monday, helped by tight liquidity and expectations that the central bank will raise its lending rate this week, while stocks fell for a third-straight session. At the close of trade, commercial banks quoted the shilling at 101.35/45 to the dollar, from Friday's close of 102.35/45. Traders said the shilling had strengthened due to tight liquidity in the money markets, which had pushed interbank lending rates higher.
The weighted average interbank lending rate rose to 19.2121 percent on Friday from 18.4628 percent a day earlier, and hit an intraday high of 20 percent. "We are looking at very tight liquidity in the money market, which is strengthening the shilling," said a trader at one commercial bank.
The shilling had also gained on expectations that the central bank will raise its benchmark lending rate at its meeting on August 5, traders said. The central bank's Monetary Policy Committee (MPC) has raised the rate by 3 percentage points since June, to 11.5 percent, to offset the weakening shilling. A Reuters poll of 11 analysts shows the rate is expected to rise to 12 percent. A second trader said subdued dollar demand from corporate players - a common occurrence on the first trading day of a new month - had further helped the local currency to gain.