NAIROBI: The Kenyan shilling eased slightly on Wednesday, taking cue from central bank's action of injecting local currency into the market a day earlier after tight supply saw interbank lending rates rise, discouraging banks from holding dollars.
Traders said they were watching to see if the Central Bank of Kenya (CBK) would return to the market, a day after it injected 8 billion shillings ($90 million) using reverse repurchase agreements following days of strained shilling liquidity that led to interbank lending rates rising.
At 0757 GMT, commercial banks quoted the shilling at 87.80/88.00 to the dollar, compared with Tuesday's close of 87.85/95.
"We have weakened slightly from yesterday after the CBK came in to pump in shillings in the market," Sheikh Mehran, head of trading at I&M Bank, said.
The volumes borrowed on the interbank market fell to 15.48 billion shillings on Tuesday from 22.26 billion shillings a day earlier, but the weighted average lending rate rose to 10.7589 percent from 10.5181 percent on Wednesday, pointing to tight liquidity still prevailing.
Mehran said the shilling could be capped from weakening past 88 due to dollar inflows from foreign investors buying stocks on the Nairobi Securities Exchange (NSE).
"We predict that this level will hold quite strongly at 88. There is increased foreign participation at the NSE which is likely to give the shilling a boost," he said.
Traders forecast the shilling to trade in the 87.50 to 88.00 range in coming days.
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