Kenya shilling weaker on energy demand for dollars

The Kenyan shilling fell 0.6 percent against the dollar on Thursday, weakened by energy sector demand for the U.S. currency, and traders were not expecting much reaction to the central bank's decision to leave interest rates on hold.

The bank's Monetary Policy Committee (MPC) left the key rate unchanged at 18 percent on Wednesday to allow hikes in the final quarter of 2011 to filter through the system.

Traders said the move had been expected and was already priced into the shilling.

"There was slight demand from the energy sector," Sameer Lagadia, head of trading at Diamond Trust Bank said.

"Since the central bank left the rate unchanged, I do not see much happening to the shilling.

But it will weaken as time goes if the euro zone crisis persits," he said.

The MPC noted that a widening balance of payments gap and its potential impact on the exchange rate, as well as the festering euro zone crisis, posed risks to the shilling.

At 0840 GMT, commercial banks quoted the shilling at 87.60/80, weaker than Wednesday's close of 87.25/45.

Dickson Magecha, a trader at Standard Chartered said interbank demand for the greenback was also undermining the shilling.

Kenya's central bank said it was seeking to mop up 4 billion shillings ($45.90 million) from the market on Thursday through repurchase agreements, the sixth time it has sought to hoover up excess liquidity this year.

Widely criticised for not taking early decisive action to stem the shilling's plunge last year to a record low of 107 to the dollar in October, the central bank has been mopping up liquidity this year to help ease pressure on the shilling.

So far in 2012, it has taken out a total of 11.65 billion shillings through repos and sold an unspecified amount of dollars.