NAIROBI: The Kenyan shilling weakened on Wednesday, hovering near three-year lows due to dollar demand from the energy and telecoms sectors, and traders said importers buying dollars would keep it under pressure.
On the Nairobi Securities Exchange (NSE), stocks edged lower, breaking a three-day rising streak.
By close of trade at 1300 GMT, commercial banks quoted the shilling at 89.25/35 to the dollar, compared with Tuesday's close of 89.00/10.
"There's a bit of weakness. There was some demand that took us where it is, from telecoms and energy," a senior trader at one commercial bank said.
During the session, the shilling touched 89.35/55 to the dollar, staying at levels last traded in mid-December 2011, according to Reuters data.
"The shilling is expected to weaken because demand is revealing itself, and the mop-ups by the central bank are not helping," National Bank of Kenya trader, Ian Kahangara, said.
Kahangara said a few banks were slightly long on dollars because market players felt like the central bank could sell dollars, but that none wanted to be caught with too long a position when that happened.
The market is awash with the local currency due to renewed government spending and maturing bonds, and there is also a shortage of foreign currency inflows, traders said.
The central bank bought 3.4 billion shillings ($38.25 million) in excess liquidity on Tuesday from the money market, having tendered for 10 billion shillings. The bank has sought to mop up local currency for nine sessions in a row.
Draining excess liquidity supports the shilling by making it more costly to hold dollars.
Traders said only the central bank selling the US currency would support the shilling longer term.
In late August, the central bank sold dollars into the market after the shilling hit 88.80/90.
Some traders said they see the shilling, which has lost about 2.6 percent against the dollar this year, weakening to 89.40 by next week if the central bank fails to sell dollars.
On the Nairobi Securities Exchange, the main NSE-20 Share Index was down 8.14 points to close at 5,209.10 points.
Telecoms firm Safaricom, which typically on any given day is the most traded, closed down 2.7 percent at 12.50 shillings.
Eric Musau, research analyst at Standard Investment Bank, said the drop was because the share had started to trade ex-dividend. "They've closed their books for dividends yesterday. The primary reason is really the dividend," he said.
On the secondary market, bonds valued at 1.95 billion shillings were traded, up from 674.2 million shillings on Tuesday.
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