NAIROBI: The Kenyan shilling fell 0.8 percent against the dollar on Friday, after heavy interbank short covering of the US currency, and the market anticipated the central bank would intervene to defend the local currency.
The bank has been draining excess liquidity this week, absorbing 13.3 billion shillings ($159.8 million), which has lent support to the local currency and in a bid to curb double-digit inflation at 18.3 percent.
At 0715 GMT, commercial banks quoted the shilling at 83.55/75 per dollar, weaker than Thursday's close of 83.40/60.
"Most players are sitting short, so they were covering their (dollar) positions," Solomon Alubala, head of trading at Cooperative Bank, said.
"Most players had been selling dollars to fund shilling positions since it was expensive to stay long on dollars."
With the central bank's tight monetary policy, traders said the high interest rates made it costly to fund shilling positions, forcing many banks to trim long dollar positions.
A Commercial Bank of Africa report said interbank players had led the pack on profit-taking after the local currency traded near one-year highs in the previous session.
Traders said the central bank was expected to continue mopping up excess liquidity in the market, following government disbursements into various projects. The interbank weighted average rate has also eased to 10.7 percent with 8.9 billion borrowed among commercial banks on Thursday.
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