Shilling weakens due to importer dollar demand, increased liquidity

Kenya’s shilling weakened on Monday, undermined by dollar demand from importers in the manufacturing and energy sectors and increased liquidity, traders said.

At 0720 GMT, commercial banks quoted the shilling at 103.60/80 to the dollar, compared with Friday’s close of 103.20/30.

“There is some (dollar) demand and not much supply in terms of inflows. This has been from last week. There is still demand flowing into this week. Demand is from the importers … oil and manufacturing,” a senior trader at one commercial bank said.

A second trader at a second commercial bank said the shilling was expected to remain under pressure during the week, with more importer dollar demand expected as the month draws to a close.

The shilling is also under pressure from increased liquidity in the money markets, which has led the average interbank lending to drop to 15.3399 percent on Friday from 24.0373 percent on Aug. 13.

Increased shilling liquidity makes it cheaper to hold dollars, which in turn weakens the local currency.

“Shilling liquidity has improved quite some bit,” the senior trader said.