The Kenyan shilling weakened against the dollar on Monday to hit a four-month low, dragged down by importer orders for the greenback, while stocks extended gains into a second week.
At the 1300 GMT close of trade, commercial banks posted the shilling at 84.90/85.10 per dollar, a level it last touched on Jan. 27, and 0.4 percent weaker than Friday's close of 84.50/70.
"We have seen continued demand for dollars from the corporate side. This trend is likely to continue in coming days as we approach end-month," said Dickson Magecha, a trader at Standard Chartered Bank.
Over the past two weeks, the shilling has given up nearly all the moderate gains it had made this year, weighed on by a surge in liquidity that sent yields on government securities tumbling, raising the prospect of lower dollar inflows.
That prospect of a drop in dollars from overseas investors into Treasuries was compounded by worries about a possible Greek exit from the euro currency. The shilling is 0.2 percent up against the dollar this year.
Traders said they expected the shilling to trade within a narrow 84.30-85.30 range this week.
The Central Bank of Kenya has been active in the market, selling an unspecified amount of dollars directly to commercial banks and soaking up liquidity through repurchase agreements, to prevent the shilling from falling drastically.
During Monday's trading, it sought to absorb Sh10 billion via repos, receiving bids worth Sh5.5 billion which it accepted at a weighted average interest rate of 17.6 percent.
The bank has mopped up Sh51.4 billion shillings since April 27 when liquidity surged suddenly and sent overnight rates sharply lower.
The weighted average interbank interest rate edged up to 17.8 percent on Friday from 17.2 percent the previous day.
"The market is expected to remain volatile with one eye on the central bank activity," said Commercial Bank of Africa in a market report.
At the Nairobi Securities Exchange, the benchmark NSE-20 Share Index edged up for the eighth straight session, adding 0.3 percent to 3,708.88 points.
"Investors continue seeking bargains in equities given the declining yields in bonds and increase in liquidity," said Ronald Lugalia, an analyst at Afrika Investment Bank.
Yields on Kenyan debt are set to fall into single digits at auction this week, a level last seen in September, dragged down by high demand amid falling inflation.
Mumias Sugar, a grower and miller of the sweetener, rose 1.8 percent to Sh5.65 a share as investors bet on good cane production following heavy rains.
In the fixed-income market, government bonds worth Sh2.3 billion were traded, down from Sh1.3 billion on Friday, with most activity focused on the 12-year infrastructure bond, which traded with a yield of 11.3 percent.
-Reuters
