Shilling weakens, liquidity squeeze limits losses

The shilling weakened to new three-year lows yesterday on dollar demand by importers but tight liquidity in the money markets kept it from falling even further.

Banks quoted the shilling at 97.65/75 to the dollar - a new low last touched in November 2011 - compared with Friday’s close of 97.40/50. Traders said there was tight liquidity arising from payments being made in local currency for Treasury bonds and bills that were auctioned last week.

The Central Bank auctioned a 10-year and a two-year Treasury bond worth Sh25.29 billion and Treasury bills worth a total Sh3.29 billion.

“There’s still some bit of dollar-buying this morning. It (shilling) is supported by tight liquidity in the market. It’s because today we expect the payments from the bond and bills,” Martin Runo, senior trader at Chase Bank, said. Tight liquidity makes it expensive to hold dollars, which in turn supports the shilling.