The local shilling ended steady against the dollar on Friday, but was seen weakening as falling interest rates make it cheaper for commercial banks to hold long dollar positions, while shares halted a three-session rally.
The shilling was posted at Sh84.30/50 per dollar at the market close, unchanged from Thursday’s close.
“There is a bearish tone on the shilling. ... as yields fall it’s less attracative to hold the currency,” said Raphael Owino, a senior trader at Commercial Bank of Africa.
Yields on the benchmark 91-day Treasury bill fell to 7.515 per cent on Thursday even though demand was low, from a high of close of 21 per cent at the beginning of the year.
Central Bank slashed its key lending rate by 350 basis points to 13 per cent this month and economic analysts expect further loosening.
Chris Muiga, a senior trader at Kenya Commercial Bank, said it would likely be four to six months before growth in imports as a result of cheaper credit translated into an uptick in inflationary pressure.
Traders said they expected the Central Bank to continue mopping up liquidity through repurchase agreements and use other open market tools to support the shilling.
On Friday, the Central Bank, which sought to mop up Sh16 billion, received bids worth Sh13.48 billion and accepted them all.In stocks, the main NSE-20 share index was barely changed, slipping 0.30 point to 3,953.53 points, while the Nairobi All Share Index eased 0.7 percent to 86.61 points.
“Investor appetite for stocks remain strong going by the increased tradable volumes in the market and investor interest in the banking sector,” said Ronald Lugalia, an analyst at Afrika Investment Bank.
Safaricom, the leading mobile operator and one of the most capitalised stock, fell 4.8 per cent to Sh3.65 shillings after its shares started trading without a dividend.
Longhorn, publisher, which issued a profit warning in the previous session, shed 8.5 per cent on thin volumes to 15.10 shillings.
In the debt market, Sh4.8 billion worth of government and corporate bonds were traded, down from Sh5.5 billion on Thursday.
Meanwhile, Rwanda’s year-on-year urban inflation rate rose 5.81 per cent last month from 5.57 per cent a month earlier, due mainly to rising food, statistics office said.
