Kenyan shilling steady vs dollar in tight market

NAIROBI: Kenya's shilling held steady on Monday as rising interbank rates and a tight money market offset importer demand for dollars, traders said.

Tight liquidity has led to the weighted average interbank lending rate rising for 13 straight sessions. It reached 7.6 percent on Friday from 5.4 percent on Jan. 15.

At 0845 GMT, commercial banks quoted the shilling at 87.40/60 to the dollar, compared with Friday's close of 87.45/65.

The central bank has this year been persistently draining shillings from the money market via repurchase agreements as well as intermittently selling dollars to support the currency.

The bank has injected dollars in seven sessions this year, contributing to five straight weeks of falls in foreign exchange reserves, which stood at $4.959 billion on Friday.

On Monday the central bank said it was seeking to absorb 10 billion shillings ($114.2 million) from the market.

Even so, the shilling has fallen 1.6 percent against the dollar so far this year.

Market players say importers have been stockpiling the dollar ahead of presidential and parliamentary elections next month. The last general election in 2007 unleashed a wave of ethnic bloodletting that badly stunted economic growth.

There are concerns that there could be violence again this time because the alliances forged by the main presidential contenders are shaped along ethnic lines, and the vote is expected to be close.

"At the moment liquidity has tightened that's why the shilling is stable. The elections have also been factored in, but we can't rule out more (dollar) demand from importers," said John Muli, a trader at African Banking Corporation.