NAIROBI: The Kenyan shilling was steady on Monday and traders predicted it would stay in a tight trading range for now, with a bias for easing.
At 0835 GMT, commercial banks quoted the shilling at 87.80/88.00 to the dollar, compared with Friday's close of 87.90/88.00.
On Friday, the shilling weakened slightly when banks bought dollars after signs that a domestic funding crunch was easing.
"With the market's improved liquidity, we'll see interbank players choose to cover their short (dollar) positions that they were carrying," said a senior trader at one commercial bank.
Overnight borrowing rates on the interbank market had shot up over the past two weeks after the government delayed the release of funds to departments and local authorities.
The central bank injected funds into the market through reverse repos from Tuesday to Thursday last week, helping to alleviate the crunch. .
Some traders forecast tighter liquidity as a new central bank cash reserve ratio cycle approaches on Aug. 15.
Under its cash reserve ratio rules, the central bank requires all commercial banks to deposit 5.25 percent of their domestic and foreign currency.
While the central bank allows commercial banks to go below that level, they are required to meet it by the 15th of each month.
"The direction on the shilling will be greatly determined by the liquidity situation in the money market as we approach (Friday)," Bank of Africa said in its market report.
Traders forecast the shilling to trade in the 87.70 to 88.20 range against the dollar in coming days.
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