Kenyan shilling weakens, seen in a tight range

Kenyan shilling weakens, seen in a tight range
Nairobi Security Exchange

The Kenyan shilling weakened on Monday as liquidity increased in the money markets, though traders forecast the currency would trade in a tight range in the days ahead.

At 0900 GMT, commercial banks posted the shilling at 102.30/40 per dollar, from Friday’s close of 102.15/25.

“Liquidity is back,” said a trader at one commercial bank. “We expect demand and supply to be well-matched.”

Traders said a shortage of local currency sent overnight lending rates to a high of 26 percent last week when liquidity in the money markets tightened.

Banks hold local currency to meet regulatory requirements to maintain a cash reserve ratio (CRR) of 5.25 percent of their deposits for a month starting on the 14th of every month but have the leeway of going down to 3 percent thereafter.

Typically, liquidity eases when banks lower their CRR, allowing players with short dollar positions to buy greenbacks.

Kenya’s central bank said it sought to mop up 25 billion shillings ($245 million), citing excess liquidity.

Short-term rates had jumped higher after the central bank adopted a monetary tightening stance to curb volatility in the foreign exchange market. Policymakers have raised the rate by a total of 300 basis points in June and July after the shilling weakened sharply against the dollar.

The shilling has weakened more than 10 percent this year mainly due to expectations of a U.S. interest rate hike, a slump in tourism caused by militant attacks, lower export earnings and a surge in imports. (REUTERS)

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Kenyan shilling weakens, seen in a tight range
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