Shilling steady, seen weakening to 95 mark

The shilling steadied at three-year lows touched late last week, yesterday, as dollar demand eased at the start of the month.

Commercial banks quoted the shilling at Sh94.60/70 to the dollar, the same level as Thursday's close and near lows last seen in November 2011.

The market was closed on Friday for a public holiday.

"Corporate dollar demand has petered out after companies met their end-month demands last week," said a trader at a major commercial bank in Kenya, adding the currency was likely to stay within the Sh94.60/90 range over the coming days.

Dollar demand from importers typically rises at the end of the month as companies settle their bills.

"We expect the shilling will continue weakening, attracting the attention of the central bank," the trader said.

"That said, I think the central bank is resigned to the fundamental weaknesses of the currency, and will only step in to reduce the rate of depreciation."

The shilling has lost 4.2 per cent against the dollar this year and the Central Bank intervened three times last month, selling dollars to prop up the shilling. A second trader said quiet trading on Monday morning would likely give way to further weakening.

The shilling has been weakened by the global strength of the US dollars as well as fundamental weaknesses in Kenya's economy, including a decline in tourism and the horticulture sector, the country's main foreign currency earners, traders say.

The tourism sector has been hurt by a spate of deadly attacks by the Somali Islamist militant group Al Shabaab, most recently an attack last month on a university in Kenya's north. The horticulture sector has been hit by poor and uneven rains.