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Kenyan shilling loses more ground against dollar, reversing gains from previous day

The shilling weakened yesterday, reversing the gains it made a day ago but traders said it was likely to come under pressure in the days ahead due to the end-month demand for dollars from importers. Commercial banks posted the shilling at 98.65/75 per dollar in early trade, versus Wednesday’s close of 98.35/45.

“It looks like we’re reversing yesterday’s (Wednesday) gain, purely on the back of a build-up in corporate demand. A lot of players who missed the move yesterday came into the market today and wanted to buy,” said a trader at a major commercial bank in Kenya.

The trader said the shilling was likely to continue weakening, and could touch the 99 level next week. “With the shilling depreciating, some people would rather cover (future demands) now than wait,” he said.

Central Bank of Kenya (CBK) was in the market to sell an unspecified number of dollars on Wednesday, helping to boost the currency, the trader said, as reported by a local newspaper. Other traders said they were still waiting to confirm the report.

CBK said it would mop up Sh3 billion from the market yesterday, noting there was excess liquidity. Mopping up liquidity by the banking sector regulator usually makes it a bit more expensive to bet against the shilling.

Going by CBK data, 2015 is the fifth straight year in which the Kenya shilling has begun the year weaker than it opened the previous one. In nominal terms, the unit has lost an average of Sh3 per year in the past five years.

The local unit, which is five per cent weaker this year, has come under pressure from demand by corporates and importers of capital goods for various infrastructure projects ongoing in the country.

“The economy is growing and there’s great demand for dollars for import of capital goods. Increasing demand for the dollar continues to put pressure on the shilling,” according a trader.

The event of the currency weakening spells good news for exporters but puts increased pressure on an import-dependent economy that has to fork out more Kenya shillings to afford foreign goods.

According to Standard Chartered Bank’s April 2015 Business Sentiment Index, business leaders continue to be wary of the ongoing depreciation of the local currency against the dollar.

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