NAIROBI: The Kenyan shilling firmed on Wednesday helped by tight liquidity in the money markets but traders said the local currency was expected to stay under pressure due to end-month importer demand for dollars.
At 0745 GMT, commercial banks quoted the shilling at 91.50/60 to the dollar, compared with Tuesday's close of 91.60/70.
Traders said the shilling was receiving support from a shortage of the local currency after investors bought Treasury bills and bonds worth a total 26.6 billion shillings ($290.9 million) last week.
Tight shilling liquidity makes it more expensive to hold long dollar positions, which partly supports the shilling.
Due to the liquidity squeeze, the weighted average interbank lending rate rose to 8.0814 percent on Tuesday from 7.7290 percent on Monday.
"The markets are very tight. We have seen overnight rates jump up. That's what is keeping the shilling well supported," a senior trader at one commercial bank said.
However, traders said the shilling's strengthening was temporary and that it would start easing once liquidity improved as there was still significant importer dollar demand.
"The fundamentals on the ground still point towards strong demand side and a subdued supply side," Bank of Africa said in its daily market report.
The shilling - which has lost 1 percent against the dollar so far this year - is forecast to trade in the 91.40 to 92.00 range in the days ahead, traders said.
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