Kenyan shilling flat, underpinned by funding crunch

NAIROBI, KENYA: The Kenyan shilling held steady against the dollar on Friday as a funding crunch in money markets kept it from weakening further in the face of increased dollar demand.

At 7.15, commercial banks posted the shilling at 88.25/35 per dollar, unchanged from the previous day's close.

The shilling weakened past a key technical level on Monday as demand for dollars rose among importers and inflows shrank, reflecting tough times for the tourism industry caused by frequent attacks by Islamists from neighbouring Somalia.

Although Monday's break past 88.20 and market dynamics pointed to further weakening, the shilling has held its own,thanks to overnight lending rates that have made it increasingly expensive for banks to hold dollars.

"The only thing holding it now is tighter liquidity. There are really no shillings," said Nahashon Mungai, a trader at KCB Bank.

The weighted average interest rate on the overnight borrowing market for banks jumped to 13.1097 percent on Thursday from 12.8672 percent on Wednesday.

The liquidity crunch, which has lasted for weeks, was caused by delays in the government disbursing funds to local authorities and government departments.

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