Kenyan shilling steady, seen easing due to importer dollar demand

NAIROBI, KENYA: Kenya's shilling was steady on Wednesday and traders said they expected it to weaken due to increased importer dollar demand.

At 0700 GMT, commercial banks quoted the shilling at 98.30/50 to the dollar, compared with Tuesday's close of 98.35/45, which was a new low last hit in Nov. 2011.

"The shilling is still on the backfoot. Of course there is pressure coming in from importers' end-month demand," a senior trader at one commercial bank said.

This year, the shilling has been undermined by a stronger dollar, lower foreign exchange proceeds due to a slump in tourism, and a ballooning current account deficit driven by demand for imports like capital goods.

Traders said while central bank did not give reason for bringing its Monetary Policy Committee meeting forward by one month to June 9, they thought it was due to the weakening shilling, which has so far lost 7.8 percent this year.

"I guess they need to address this issue. My take is they one, will look at the interest rate side -overnight rate is above 12 percent -- and how to support the shilling," the senior trader said.

The weighted average interbank lending rate rose to 12.7569 percent on Tuesday from 12.4179 percent on Monday, a sign of tightening shilling liquidity.

"Panic buying, as tends to happen when the shilling depreciates suddenly, is expected to weigh on the shilling in the near term. The only reprieve for the local unit is the tight liquidity in the overnight interbank lending markets," Bank of Africa said in its market report.