Inflows lift shilling to one-month high

The shilling Wednesday firmed up to a one-month high on the dollar buoyed by the increased inflows from investors buying the infrastructure bond.

Kenya shilling consolidated its position below the 89 level in trading Wednesday, with Central Bank of Kenya (CBK) quoting it at an indicative mean of 88.90 units to the dollar from 89.10 on Tuesday.

Banks quoted the shilling at 88.75/85 by midday, having opened at 88.85/95. Last week, the shilling closed trading ahead of the long weekend at 89.10/20.

“The impact of this infrastructure bond will be in the market beyond this week, given that investors are speculating the bond may have a tap (reopened) sale,” said CBA senior dealer Joshua Anene.

“The shilling looks buoyant at the moment, but once the effects of the bond wear off, coupled with the usual end month demand from importers, we might begin to see it tracing back to the 89 level.”

The shilling was helped to break the 89 barrier by the twin impacts of the bond and the continued CBK mop-up of liquidity in the market that reduces dollar demand.

The regulator mopped up Sh9.7 billion from the market on Tuesday against a target of Sh19 billion and was in the market for a further Sh10 billion on Wednesday.

A liquidity crunch in August and early September had seen CBK resort to injecting liquidity into the market. Liquidity has improved in the last few weeks, however, after the government released cash to counties and contractors.

This has resulted in a lowering of bank overnight borrowing rates as the lenders cut borrowing from peers.

READ: Pressure on shilling eases on Central Bank liquidity mop-up

The infrastructure bond has come at a time the Kenya shilling was increasingly under pressure having found it difficult to generate any momentum that would push it below the 89 level.

The Treasury concluded selling the Sh15 billion 12-year infrastructure bond on Tuesday, with a coupon rate of 11 per cent being seen as attractive, especially to foreign investors due to the tax-free status of the issue.

The infrastructure bond does not attract withholding tax unlike other government bond issues.

Auctions were conducted yesterday leading to a surge in shilling demand from investors that traders expect will last until at least Monday. The results of the bond are expected to be published on Thursday.

Forex traders also reported they have started receiving enquiries from importers for dollars, with activity expected to pick up more towards the end of the week and early next week.

Investors are also watching keenly the yields on both the infrastructure bond and the Treasury bills that were on auction starting Wednesday.