Shilling firms after central bank sells more dollars

Reuters: The shilling has firmed after the Central Bank of Kenya (CBK) sold an unspecified amount of dollars into the market for the second day in a row, but traders said there was still strong dollar demand.

On Friday, commercial banks quoted the shilling at Sh88.25/Sh89.35 to the dollar, from Thursday’s close of Sh88.95/Sh89.05. “Yes, the central bank has sold dollars for the second day,” National Bank of Kenya trader, Ian Kahangara, said.

The local currency has been under pressure since last week due to dollar demand from importers, against scant hard currency inflows. Despite the injection of dollars, the shilling remained under pressure and was likely to weaken again, traders said.

Traders said the central bank would be hard pressed to sustain its interventions without running down its own foreign exchange reserves, because hard currency inflows were scarce. “For how long will the central bank sustain the dollar sales without running down its reserves in the face if strong dollar demand and scarce dollar inflows,” Kahangara said.

Peter Njuguna, a Treasury official at Kenya Commercial Bank said the central bank was determined to support the shilling. “I think their thinking is that the move to Sh89.50 was too drastic, and they want to stabilise at slightly stronger levels, they are really supporting the shilling,” Njuguna said.

CBK said in a statement on Thursday that it was able to cope with any shocks to the economy after accumulating what is said was its highest ever foreign exchange reserves, totalling $7.4 billion (Sh600 billion) worth 4.85 months of import cover. Tea and tourism sectors, leading foreign exchange earners, have faced difficult times this year, causing a shortage of hard currency. A global glut has hurt tea prices, while insecurity has kept tourists away.