NAIROBI: The Kenyan shilling was little changed on Thursday, with tight liquidity offsetting end month dollar demand, but traders said the shilling will come under pressure if the rout in emerging market currencies spills over to frontier markets.
At 0740 GMT, commercial banks quoted the shilling at 86.00/10 to the dollar, compared with Wednesday's close of 86.05/15.
Joshua Anene, a trader at Commercial Bank of Africa, said the shilling had weakened to touch a low of 86.10/20 in the morning due to corporate dollar demand to pay end of month bills.
He added that the shilling will also come under pressure from the sell-off in Kenyan stocks, which have mirrored losses in emerging markets where foreign capital flight has seen stocks decline and local currencies weaken.
"(The pressure on the shilling) is a reflection of what's happening in emerging and frontier markets and we are not immune from that," said Nairobi-based Anene.
"We expect it to come under more significant pressure in coming days."
The US Federal Reserve's announcement on Wednesday that it would reduce its monthly bond-buying programme by a further $10 billion a month added to concern among investors in emerging markets and increased the appeal of safe-haven assets.
One of the supports for the shilling has been tightening liquidity in the market, which makes it slightly costlier for banks to fund long dollar positions, which helps strengthen the local currency.
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