Kenya shilling steady, high lending rates support

NAIROBI: The Kenyan shilling held steady against the dollar on Thursday and traders said they expected it to get further support from rising interbank lending rates.

At 0751 GMT, commercial banks quoted the shilling at 92.35/55 to the dollar compared with 92.30/50 at Wednesday's close.

Traders said the shilling was seen strengthening further in the coming days, lifted by a surge in interbank lending rates since the central bank revised its overnight borrowing rules in mid August.

The rising rates have raised the premium for holding shillings than dollars to more than 20 percent.

"The market (is) watching high interest rates with overnight still going up. For now, of course it's hugely supporting the shilling," said Dickson Magecha, a trader at Standard Chartered Bank.

The weighted average interbank lending rate rose to 24.25 percent on Wednesday, from 22.29 percent a day before, and from 8.34 on Aug. 12, when the Central Bank of Kenya tightened its overnight borrowing rules.

"The situation remains the same. The tightening in liquidity has been sustained and that is making it difficult for people to actually hold any long dollar positions," said Solomon Alubala, head of trading at Co-operative Bank.

Copyright Reuters, 2011