NAIROBI: The Kenyan shilling was flat near three-year lows on Wednesday and traders said the local currency was expected to come under pressure due to dollar demand from importers.
By 0830 GMT, commercial banks quoted the shilling unchanged at 89.00/10 to the dollar, yet to convincingly break the key 89-level after which it could tumble even further.
The shilling touched 89.05/25 late on Tuesday, its weakest since it hit 89.10/20 in mid-December 2011, Reuters data showed.
"The shilling is expected to weaken because demand is revealing itself, and the mop-ups by the central bank are not helping," National Bank of Kenya trader, Ian Kahangara, said.
"Banks are square, and a few are slightly long on dollar, because there is a feeling in the market that the central bank could sell dollars, and no one wants to be caught too long on dollars if that happens."
The market is awash with the local currency due to renewed government spending and maturing bonds, and there is also a shortage of foreign currency inflows, traders said.
The central bank bought 3.4 billion shillings ($38.25 million) in excess liquidity on Tuesday from the money market, having tendered for 10 billion shillings. The bank has sought to mop up local currency for nine sessions in a row.
Draining excess liquidity supports the shilling by making it more costly to hold dollars.
Traders said only the central bank selling the U.S. currency would support the shilling longer term.
In late August, the central bank sold dollars into the market after the shilling hit 88.80/90, which, at the time, was its lowest since December 2011.
Some traders said they see the shilling, which has lost about 2.6 percent against the dollar this year, weakening to 89.40 by next week if the central bank fails to sell dollars.
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