Kenya shilling slips but tea, bonds may support

The Kenyan shilling weakened on Wednesday on energy sector demand for the U.S. dollar, but traders said it would get support from inflows to the tea sector and from offshore investors buying government bonds.

High yields on government securities have fuelled foreign demand, especially for short-dated papers, bringing dollars into the country and leading to high subscription rates.

The government will auction 10 billion shillings ($120.1 million) of one-year bonds and 3 billion shillings of 182-day Treasury bills on Wednesday. It is also offering a 12-year infrastructure bond on tap sale, to raise up to 17.7 billion shillings.

"The shilling is down on short covering by banks and some demand from the energy sector. But it could recover as tea guys
and bond investors are expected to sell dollars," said a trader at one commercial bank.

At 0743 GMT, commercial banks quoted the shilling at 83.10/30 against the dollar, slightly weaker than Tuesday's close of 82.95/15.
Traders said the shilling could trade in the 83.00-84.00 range during the week as the central bank is expected to stay out of the repo market.

It will hold its next policy setting meeting on March 6.

The regulator has not been in the repo market since Feb. 10.

It has mopped up a total of 40.33 billion shillings ($484.4 million) so far this year, helping the shilling firm 2.2 percent year-to-date.
"I don't think central bank will be coming in with repos this week," said Bhavin Chandaria, a trader at Imperial Bank.

The weighted average interbank lending rate rose to 20.8 per cent on Tuesday, from 19.4 percent on Monday.