NAIROBI: Kenya's shilling recovered some of its losses on Tuesday when the central bank sold dollars to the interbank market, traders said, and the bank warned it would act to curtail speculation in the currency.
Traders at commercial banks said the central bank sold an undisclosed amount of dollars after the shilling weakened to lows last seen in November 2011. The intervention buoyed the shilling, although it remained at three-year lows, where it has traded for weeks.
The central bank says it only sells dollars to smooth out volatility in the markets and not to target a particular level.
Separately, the central bank's deputy governor, Haron Sirima, said the bank had seen some speculation and will "scale up" its open-market operations to stem market volatility.
He said the bank would use its foreign exchange reserves and a precautionary facility from the International Monetary Fund to contain any volatility.
"The Central Bank will continue to monitor developments in the foreign exchange market but allow genuine demand and supply factors to determine the level of the Kenya Shilling exchange rate," Sirima said.
Sirima said while Kenya's balance of payments were positive, the current account had suffered on increased capital imports.
"The widening current account deficit continues to exert pressure on the Kenya shilling exchange rate," he said.
At 1108 GMT, the shilling traded at 96.40/60 to the dollar, up from 96.80/97.00 before the bank sold the dollars.
The shilling had closed at 96.20/30 on Monday, but weakened on dollar buying from companies, traders said.
The central bank also drained 8.45 billion Kenyan shillings ($88 million) in excess liquidity from the money markets using repurchase agreements and term auction deposits.
Mopping up liquidity makes it expensive to hold dollars, which in turn lends support to the shilling.
The shilling has lost 6 percent to the dollar this year, hit by a slowdown in foreign exchange revenues from tourism after a number of militant attacks that scared visitors away, and by a decline in horticulture earnings blamed on uneven rain.
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