Kenya shilling holds steady vs dollar
| Jun 8th 2012 | 2 min read
The Kenyan shilling held steady against the dollar on Friday and traders said the local currency could firm further supported by the central bank's persistent liquidity mop-ups that have made it costly to hold long greenback positions.
At 0808 GMT, commercial banks quoted the shilling at 84.60/80 per dollar, the same level it closed at on Thursday.
"Guys are unwinding long dollar positions ... since funding them is getting expensive as the central bank mops up liquidity for longer," said a trader at one commercial bank. "The shilling still has further room to gain."
The shilling has rallied 1.4 percent since Tuesday and came off a five-month low of 87.80 hit on May 31, after the central bank kept a tight monetary stance for the sixth straight month.
The regulator, which also unveiled longer tenure repurchase tenders (repos), was in the market to soak up 2 billion shillings ($23.7 million) on Friday in 7-day, 14-day, 21-day and 28-day repo tenures.
On the money market, the weighted average interbank lending rate rose for the third straight session on Thursday to 17.2 percent from 16.9 percent on Wednesday, lifted by the tightening liquidity.
Demand for government paper, however, has been hit hard after commercial banks rushed to buy the longer tenure repos agreements that offer higher returns of up to 18 percent.
At this week's sale, yields on the three and six month Treasury bills rose for the first time since January, while the rate on the one-year paper was unchanged. All the auctions were undersubscribed.
Traders said they expected inflows from the country's leading foreign exchange earning sectors, tea and tourism, to support the shilling in coming weeks, despite risk aversion from the euro zone that dragged it lower last week.
Tourism, which earned the country a record $1.2 billion last year, is headed to a peak season between June and August due to the wildebeest migration at the Mara river.
The sector is, however, expected to perform more weakly this year due to concerns over the euro debt crisis and security in the east African country.
"The shilling remains well supported from dollar flows coming from the tea sector and tourism as we head into peak season," said Bank of Africa in a daily statement.
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