Kenya shilling gains on subdued demand

The shilling rose against the dollar on Friday due to subdued demand and tight market liquidity.

Commercial banks quoted the shilling at 83.90 after gaining from 84.20 at the opening of trade on Friday morning.

The shilling had lost to trade at 84.20 from 83.85 on Thursday evening after the energy sector and manufacturing took advantage of favourable rates to buy dollars.

Traders said that the shilling could gain if the tightening of market liquidity continues.

“There is no sufficient demand to weaken the shilling given the prevailing high interest rates,” said Kennedy Butiko, the head of trading at Bank of Africa.

The Central Bank has kept of out of the market in the better part of this week after persistent interventions in the previous weeks.

The average interbank rates increased to 23 per cent from 22 per cent the previous weak.

The current congestion problems at the port of Mombasa is reportedly hampering tea exports delaying foreign exchange earnings that expected to provide support for the shilling.

The Central Bank is banking on a strong shilling to contain inflation and eventually provide room to lower interest rates.

The CBK left its base lending rates at 18 per cent after inflation figures dropped by a small margin from 18.72 per cent to 18.31 due to a slight reduction in oil prices.

The onset of a dry spell is also expected to add another dimension to inflation as vegetable and milk prices start to rise increasing food inflation.

High returns on government paper are also expected to attract dollars that could help to put the shilling on the gaining path.