Shilling firms on central bank action

NAIROBI: The Kenyan shilling firmed against the dollar on Thursday helped by banks trimming US dollar positions after a report that the central bank would take action over speculation in the market.

"We have seen some of the bank treasuries people say there is nothing the central bank can do but we are definitely going to take regulatory action against three banks this time," Central Bank of Kenya Governor Njuguna Ndung'u was quoted as saying by the Business Daily newspaper.

At 0750 GMT, the shilling was quoted at 90.30/50 against the dollar, stronger than Wednesday's close of 91.15/25.

"We have seen some position trimming by banks. Caution is being seen as no one want to sit on long dollar positions. When the central bank speaks we have to listen," said Peter Mutuku, head of corporate trading at Bank of Africa.

Traders said they still expected heavy importer dollar demand from the oil and grain sectors to weigh on the shilling.

"We will remain under pressure as long as we are importing heavily. The petroleum sector is still in the market and the maize guys are coming in," he said

Kenya is facing a maize deficit that saw Finance Minister Uhuru Kenyatta zero rate imports for six months in the budget for 2011/12 to help shore up reserves.

Traders said they expected the shilling to trade in the 90.00-91.50 range against the dollar, but spreads were seen remaining wide.

"The shilling will remain under pressure for now," said Wilson Mutai, a trader at African Banking Corporation.

Copyright Reuters, 2011