NAIROBI: The Kenyan shilling held steady against the dollar on Friday as the central bank said it was in the market to mop up shillings through repurchase agreements, a day after a bigger-than-expected interest rate hike.
The central bank on Thursday lifted its benchmark rate by 1.5 percentage points to 18 percent, hiking for the fourth time in a row to fight persistent inflation and a volatile exchange rate.
On Friday it said it was in the market to mop up 2 billion shillings ($22.4 million). The bank capped the maximum bid rate for the repos at its new benchmark rate.
At 0939 GMT, commercial banks quoted the shilling at 89.85/90.05 per dollar, barely changed from Thursday's close of 90.00/20.
"The central bank rate is now at par with the market. The market is trying to see their next move and people are not selling dollars," said Christopher Makombe, a trader at Standard Chartered.
"The market is a bit liquid at the moment, that's why it did not react to the repo."
Traders said they expected the shilling to firm towards the 88 level per dollar in coming days, helped by high interest rates and dollar inflows from various sectors during the holidays.
"With the authorities hiking the CBR rate further by 1.5 percent, we expect the local unit to rise further in the days to come," Bank of Africa said in a daily report.
"The shilling will receive a further boost from foreign currency sales from the farm, tourism and NGO (non-governmental organisations) sectors."
The weighted average interbank lending rate eased to 27.8864 percent on Thursday from 29.6709 percent previously, and traders said banks were capitalising on the lower cash reserve ratio (CRR) before a higher CRR of 5.25 percent comes into force in mid-December.
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