NAIROBI: The Kenyan shilling held steady on Tuesday, with traders expecting it to remain supported by tightening liquidity due to this week's payment of the annual tea bonus to small-scale farmers.
At 0708 GMT, commercial banks quoted the shilling at 84.65/75 per dollar, barely changed from Friday's close of 84.60/80. Kenyan markets were closed on Monday for a holiday.
It was still close to a four-month high of 84.50 touched on Oct. 8, lifted by strong foreign investor demand for Kenyan debt and shares.
Bank of Africa said in a daily note that liquidity was tight as a few big banks were preparing to pay out tea bonuses worth a total 51.3 billion shillings ($605.7 million), forcing other banks to borrow at high rates on the interbank market.
Tea bonuses are customers' annual bonus to small-scale farmers, usually paid in mid-October,
"This (has) left many banks looking to borrow and pushed the lending rate above 11 percent, providing psychological support to the shilling," the bank said.
The weighted average interbank rate rose to 11.0672 percent on Friday from 10.8224 percent on Thursday, having risen gradually from 6.9383 on Sept. 17.
Tight shilling liquidity makes it more expensive to hold long dollar positions.
The east African nation is the world's biggest exporter of black tea and the crop is one of its largest foreign exchange earners, bringing in $1.2 billion in 2012.
But traders said the shilling could be weighed down in the days ahead as importers buy dollars to meet supply payments, that usually fall around the end of each month.
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