NAIROBI: The Kenyan shilling held steady against the dollar on Friday, a day after the central bank maintained its lending rate at 18 percent for the fifth month in a row, citing inflation risks.
At 0736 GMT, commercial banks quoted the shilling at 83.20-40 per dollar, barely changed from Thursday's close of 83.25-45.
"Given that the central bank is above the four months import cover (FX reserves) it won't hesitate to support the shilling," said Ignatius Chicha, head of markets at CitiBank.
The central bank's foreign exchange reserves rose to $4.6 billion last week, slightly above the statutory four months import cover, aided by release of funds by the International Monetary Fund to Kenya under a $750 million Extended Credit Facility.
Traders said the shilling could get further support from the central bank in the form of interventions, through tools like repurchase agreements (repos), to take out excess liquidity from the market.
A surge in market liquidity usually makes it cheaper to fund long dollar positions, weakening the shilling.
The central bank has soaked up 15 billion shillings through repurchase agreements after debt redemptions pushed the weighted interbank rate down to 14.8 percent on April 27 from 18.0 percent a day earlier.
The interbank rate rose to 15.8 percent on Thursday, from 15.5 percent on Wednesday.
Bhavin Chandaria, a trader at Imperial Bank, said he expected the shilling to trade in the 83.00-83.50 range into next week as the tight monetary stance reduces risk in the market.
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