Shilling weakens against dollar amid loose liquidity

Kenya’s shilling lost ground against the dollar on Friday, hurt by loosening liquidity in the money markets.

Commercial banks quoted the shilling at 102.25/102.35 to the dollar, slightly weaker on Thursday’s close of 102.15/25.

One Nairobi-based trader said the shilling slipped due to loosening liquidity following heavily oversubscribed government debt auctions where most of the bids were rejected.

“The Treasury has not accepted the bids for the Treasury bills and that money has come back into the market,” said the trader.

The shilling, down about 13 percent against the dollar this year, had firmed in recent weeks due to inflows of dollars from offshore investors buying short-term government debt that yielded in excess of 20 percent.

But in auctions held on Wednesday and Thursday, the government rejected about 106 billion shillings ($1.04 billion)worth of bids and accepted bids totalling 21 billion shillings for the 91-, 182-, and 364-day Treasury bills.

The yields on all the paper plummeted at latest auctions.

In a sign of increasing liquidity in the money markets, the weighted average interbank lending rate fell to 9.3 percent on Thursday from 10.2 percent a day earlier. The rate was about 15.1 percent two weeks ago.