Kenya’s shilling is seen firming slightly in the days ahead, helped by the Central Bank’s aggressive mop up of liquidity via repurchase agreements (repos) and dollar inflows from a peaking tourism season.
In early trade on Friday, commercial banks quoted the shilling at Sh84.05/15 per dollar, barely changed from last Thursday’s close of Sh84.00/20.
“Liquidity had been a concern, but with the Central Bank taking it out aggressively this week we could see the shilling firm slightly,” said one trader.
The Central Bank of Kenya (CBK) has increased the amount it has been absorbing this week as it moves to support the shilling. Higher liquidity makes it cheaper for commercial banks to hold long dollar positions, traders said.
Traders said they expect the shilling to trade in the Sh83.60-Sh84.20 range, supported by dollar inflows from the tourism sector as it peaks in August.
The peak period for Kenyan tourism, which earned a record $1.2 billion in 2011, stretches between July and August, mainly due to the influx of tourists who come to watch the world famous wildebeests migration in the Maasai Mara reserve.
“From the flow side, demand (for dollars) has reduced and as we head to the tourism season peak we are expecting some good inflows,” said Peter Mutuku, a senior trader at Bank of Africa.
In the case of neighbouring Tanzania, its currency is also expected to gain ground against the dollar in the days ahead, buoyed by inflows from the tourism and agriculture sectors and subdued demand for the greenback.
Commercial banks in Dar es Salaam quoted the shilling at Sh1,574/Sh1,579 to the dollar on Thursday, stronger than Sh1,572/1,582 a week ago.
“We have seen a lot of inflows from corporate clients, especially from tourism,” said Hamisi Mwakibete, head of trading at Commercial Bank of Africa, Tanzania. “There are also some inflows from the agriculture sector with the ongoing cotton season, although it is not (at its) peak yet.”
Traders said they expect the shilling to trade in the 1,570-1,580 range in the coming days.