Kenya shilling holds steady vs dollar, central bank decision eyed

NAIROBI: The Kenyan shilling held steady against the dollar on Monday in cautious trade ahead of a meeting to set the benchmark lending rate on Wednesday and traders expect the central bank to intensify its mopping up of liquidity and dollar-selling.

The Central Bank of Kenya took out a total of 8.6 billion shillings ($99 million) through repurchase agreements and sold an unspecified amount of dollars last week, stemming the shilling's slide in a bid to avoid last year's scenario when it was heavily criticised for letting the currency sink.

At 0654 GMT, commercial banks quoted the shilling at 86.80/87.00 against the dollar, barely changed from Friday's close of 86.90/87.10.

"The market has its eyes on the MPC (Monetary Policy Committee) meeting," said Dickson Magecha, a trader at Standard Chartered Bank.

"We are likely to play in the 85.00 to 88.00 range to the dollar, with the up side being support from the central bank and the down side persistent corporate dollar demand."

Traders said they expected the central bank to hold its benchmark lending rate at Wednesday's rate setting meeting, as higher costs of credit were likely to hurt economic growth.

Policymakers adopted an aggressive tightening stance in the third quarter of last year, raising the central bank's key lending rate four times to 18 percent in December, to stem exchange rate volatility and high inflation.

"Authorities, fearing that a weaker shilling could undermine their efforts to tame inflation, have persistently intervened in the market to prop the shilling," said Bank of Africa in a daily report.

Inflation eased to 18.93 percent in December from 19.72 in November, the first decrease since October 2010, and traders expect it to keep edging lower in the months ahead.

In fixed incomes the central bank accepted all the 1.34 billion shillings ($15.4 million) bids for the 12-year infrastructure bond tap sale at a coupon rate of 12 percent, the bank said on Monday.

The central bank has said it will be selling the next infrastructure bond tap sale between Jan. 3 and Feb 1, at an average yield rate of 16.64 percent.