Shilling hits 3.5 month low, more losses seen

The shilling weakened on Tuesday to strike a three and a half month low due to dollar demand from manufacturers and energy firms, and traders forecast it would fall further towards the end of the month.

At the 1300 GMT market close Tuesday, commercial banks quoted the shilling at 87.05/15 against Thursday's close of 86.85/95.

During the session the shilling touched a low of 87.10/20, a level it last hit on January 7, according to Thomson Reuters data.

"It's being driven by the trickling of the end of month demand and interbank players," a senior trader at one commercial bank said.

"I believe most players were sitting rather short on the dollar, and were squaring their positions, which put the shilling under pressure."

Andlip Nazir, senior trader at I&M bank, said importer demand for the greenback would build up towards the end of the month.

"We expect the dollar to gain against the shilling in the days ahead. There will be pressure."

Traders said the shilling could get some relief if the central bank came to the market to mop up shilling liquidity.

The Central of Kenya on Tuesday took out Sh11.3 billion in excess liquidity using repurchase agreements. It had sought to drain Sh15 billion.

Market participants expected the shilling, which has lost 0.63 per cent against the dollar in 2014, to trade in the 86.80-87.30 range in coming days.