Kenya shilling steady, seen firming on rate rise

NAIROBI, Friday

The Kenyan shilling was steady against the dollar on Friday but traders said they expected the local currency to firm after the central bank raised its benchmark interest rate by more than expected. (READ: CBK rate increase signals surge in cost of loans)

The Central Bank of Kenya on Thursday raised its key lending rate for the fourth time in a row, lifting the rate by 150 basis
points to 18 percent as it moved to fight persistent inflation and a volatile exchange rate.

The surprise rate rise came after the markets had closed. At 0731 GMT, commercial banks quoted the shilling at
89.95/90.15 per dollar, barely changed from Thursday's close of 90.00/20.

"There is some importers' dollar demand weighing on the shilling. But we expect to see the shilling gain ground once the
orders go through," a trader with one commercial bank said.

"Banks won't want to stay long on dollars with the interbank rate at 27 percent."

The weighted average interbank lending rate eased to 27.8864 per cent on Thursday from 29.6709 percent previously, and traders said banks were capitalising on the lower cash reserve ratio (CRR) before a higher CRR of 5.25 percent comes into force in mid-December.

"At the moment banks can lower their CRR up to 3 percent, but we should see some tightness once the new CRR comes into
effect," the trader, who declined to be named, said.

Traders said the shilling could also be supported by inflows from various sectors during the holiday season, when more
tourists arrive and Kenyans abroad send money home, while reduced importer demand for dollars could also buoy the local
currency.

"The shilling will receive a further boost from foreign currency sales from the farm, tourism and NGO (non-governmental
organisations) sectors," said Bank of Africa in a daily report.