NAIROBI: Kenya's shilling weakened nearly one percent on Wednesday weighed by dollar demand mainly from the energy sector, but traders said they expected the central bank to sell dollars and mop up shillings in a bid to stem a further slide.
At 0756 GMT, commercial banks quoted the shilling at 86.30/50 against the dollar, 0.8 percent weaker than Tuesday's close of 85.50/70.
The Central Bank of Kenya (CBK) sought on Tuesday to mop up 5 billion shillings ($58.5 million) through repurchase agreements, but did not receive any bids as banks keen on maintain their liquidity stayed away.
The bank was criticised heavily for failing to take early decisive measures to curb the shilling from tumbling against the dollar for the better part of last year.
Traders said they expected the shilling to weaken in the days ahead as more market participants return from the holidays.
"Importers who held off making orders during the holidays are back buying dollars, especially from the petroleum sector," said Peter Mutuku, head of corporate trading at Bank of Africa.
Traders said they expected the local currency to decline steadily this week to a low of 86.50, pressured by importers demand for dollars, but inflows from the tea sector were seen providing some support after the auction on Wednesday.
Tea is a major export for the east African nation, and is seen generating a record 106 billion shillings ($1.2 billion) in earnings in 2011, up from 97 billion shillings in 2010.
"Demand for dollars from guys returning from the holiday is heavy on the shilling," said Julius Kiriinya, a trader at African Banking Corporation.
"CBK has been trying to shore up the shilling by selling dollars, but demand seem to be too much. They may be back in today."