NAIROBI: Kenya's shilling was slightly weaker against the dollar on Monday, as the market hoped the central bank would intervene to shore up the currency ahead of Tuesday's monetary policy meeting.
The central bank has been in the market selling unspecified amounts of the US dollar in recent weeks to defend the shilling, which has lost 23 percent of its value this year.
Traders expected the bank to continue with the intervention, especially if the shilling crossed the 100 mark. The shilling last hit a record low of 107 on Oct. 11.
At 0730 GMT, commercial banks quoted the shilling at 99.70/100.30 to the dollar, from Friday's close of 99.50/100.00. Traders attributed the wide spreads to a liquidity crunch that has gripped the market for weeks, in line with central bank's tight monetary polity to tame inflation and shilling volatility.
"Dealers are trading cautiously because of the wide spreads because they have to protect their positions," said a trader who declined to be named.
"I don't think CBK (central bank) is comfortable seeing the shilling at a three digit level. Because all the times where we saw the shilling trading above 100, central bank has been seriously selling dollars," the trader said.
Traders said they expected limited trade during the session, with a wait and see attitude ahead of the MPC, which is expected to give the shilling a clear direction. Analysts expect CBK to raise its key lending rate by 100 basis points from 11 percent.
Traders also anticipated the MPC may opt to increase the cash reserve ratio, the daily minimum cash a bank should have, from 4.75 percent, to tighten liquidity further in order to boost the local currency.
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