Shilling drops further against the U.S. dollar

Kenya’s shilling dropped a little on Tuesday, under pressure from some corporate demand for dollars, while stocks rose.

At the close of trade at 1330hrs, the shilling was quoted at 105.70 to the dollar, compared with Monday’s close of 105.40.

Kenya’s Business Daily reported that Central Bank foreign reserves had slipped to USD 6.252 billion – enough to cover less than four months’ worth of imports – for the first time since April 2013.

That is below the minimum level the Central Bank aims to maintain, and also leaves it with less fire power to support the currency. The bank has sporadically intervened to sell dollars, helping the shilling.

A Central Bank official declined to comment. Last week, the shilling almost hit an all-time low of 106.80 set in October 2011. Traders said central bank dollar sales had helped meet some of the demand for foreign exchange that had been exerting pressure.

A trader said the shilling could slide again, but any weakening was likely to be more gradual since the intervention. “The supply side has not improved. It will get weaker until there is significant inflow (of hard currency),” said another trader.

Also providing support, traders said there was a shortage of shilling liquidity, which was driving up overnight rates to about 18 percent from around 13 percent earlier in September. On the equity market, the benchmark NSE 20 index rose 15.94 points, or 0.37 percent, to close at 4,250.60 points.

On the secondary market, government bonds valued at 619 million shillings ($5.86 million) were traded, down from 1.1 billion shillings the previous day.