Kenyan Shilling weakens on importer demand, Central Bank comment

The shilling weakened yesterday due to importer dollar demand from oil firms and comments by the Central Bank reiterating that it had no preferred level for the local currency.

Commercial banks quoted the shilling at 102.20/40 to the dollar, compared with Monday's close of 101.75/85. Traders, however, said rising interbank lending rates were limiting the shilling's weakening.

The weighted average interbank lending rate rose to 17.2699 per cent on Monday from 16.9627 per cent on Friday, and hit an intra-day high of 18 per cent.

"There is demand for the dollar, but still in the money market it's still tight, so that is what is containing it from losing further," a trader at one commercial bank said.

"From my side I have seen some oil companies asking (for dollars)." Traders said the shilling had also reacted to the Central Bank governor's comments that the bank was focused on taming exchange rate volatility but had no optimal level for the shilling," a senior trader at a second commercial bank said.

"It's due to the Central Bank governor's comments. I think the market is taking a cue from that, they may not be that keen to intervene, and it's (shilling's) positioning itself appropriately."

Central Bank of Kenya Governor Patrick Njoroge said on Monday that the local unit was yet to stabilise, and measures to help it strengthen would take time before bearing fruit. The shilling would also not react yet to the popular visit by the US President Barack Obama over the weekend, he added.

Finance Committee

Appearing before the Senate Finance Committee, Dr Njoroge asked Kenyans to be more patient to allow the measures put in place to take effect. "Have we solved the problem (depreciation of the shilling)? The answer is no. We are monitoring the situation very closely.

"We take this seriously because we know the impact on importers and other people directly affected," said Dr Njoroge. The governor was invited by senators following concerns raised in the House about the ongoing depreciation of the Kenyan shilling.

The committee, chaired by Mandera Senator Billow Kerrow, sought to know what the regulator was doing to stop further weakening of the local currency. So far this year, the shilling is down 11.5 per cent against the dollar but still off a three and a half-year low of 103.85/95 hit in mid-July. The bank said yesterday it planned to mop up Sh2 billion in excess liquidity from the money markets.