NAIROBI: Kenya's shilling weakened on Monday after importers sought to buy dollars, partly unwinding a strengthening seen at the end of last week when the central bank intervened.
The benchmark share index at the Nairobi bourse surged 1.86 percent, driven by demand from local investors pulled in by a recent rally in shares.
At the 1300 GMT close of trade, leading banks posted the shilling at 88.80/90 per dollar, down from Friday's close of 88.50/60.
The central bank, which loathes extreme volatility in the exchange rate, pumped dollars into the market on the final two trading days of last week, lifting the shilling from a low of 89.50.
The bank's stance could keep the shilling hemmed in a band of 88.50-89.50, with the prospects of further interventions offering support to the currency.
"The market is a bit cautious with one eye on the central bank," said a trader with a leading commercial bank.
A downturn in the tourism industry, after a spate of bomb and gun attacks along the coast and in the capital this year, has hurt one of the east African country's major sources of hard currency.
"They haven't made it clear what level they are uncomfortable with but it looks like a break of 89 is something they are willing to defend," said a dealer, who asked not to be named due to the sensitivity of commenting on central bank policy.
In the stock market, the NSE-20 added nearly 100 points to close at 5,406.39 points, a fresh six-year high.
Kenyan shares have rallied in recent weeks as investors exited the debt market following a drop in interest rates. Local investors had started to get in on the act, taking their cue from their foreign counterparts, offering further momentum to the rally, said one analyst. "You have got local investors who have missed the rally piling in," said Aly Khan Satchu.
In the debt market, bonds worth 1.5 billion shillings were traded, up from a volume of 400 million shillings in the previous session.
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