Shilling dips, hurt by dollar demand

The shilling stumbled, hit by demand for dollars from importers and concerns about the euro zone crisis, but with sky-high interbank rates seen generating more gains for the local currency soon. Squaring of short positions ahead of the weekend, when commercial banks usually align their books, also drove the dollar higher.

Traders said the shilling getting back up to the key Sh90.00 level had brought in some importers, who perceived that level as attractive and bought dollars to cover their obligations at the end of the month.

In early trade yesterday, commercial banks posted the shilling at Sh90.40/70 against the dollar, down from the previous day’s close of Sh90.00/30. Traders said the shilling was likely to resume its recent bullish form once the end-of-month importer appetite was satisfied, due to a liquidity crunch that has made it hard to fund dollar holdings.

"Anything you have, you have to liquidate into shillings because it doesn’t pay to hold dollars at 30 per cent," said a senior trader with a leading commercial bank. An acute funding squeeze has sent rates on the interbank market soaring to above 31 per cent, prompting banks to cut their dollar positions and propelling the shilling higher.