Kenyan shilling seen stronger after CBK talks up currency

The Kenyan shilling hovered at near three-year lows on Wednesday, with traders saying it could strengthen after the Central Bank on Tuesday indicated that it had adequate reserves to defend the local currency.

At 0835 GMT, commercial banks posted the shilling at 89.55/65 to the dollar, slightly firmer on Tuesday's close of 89.60/70. The shilling had at one point on Tuesday slipped to 89.65/75, its weakest level since December 2011.

The rate-setting Monetary Policy Committee (MPC) said the shilling was stable due to remittances by Kenyans abroad and participation by foreign investors at the stock market. It also said that it had adequate hard currency reserves to cushion the foreign exchange market against any shocks.

Nahashon Mungai, a trader at KCB, said the shilling was receiving support from the MPC statement.

"This sort of rhetoric coming out of the MPC yesterday has definitely made the sentiment for the shilling rather positive this morning, coupled with not too much demand coming in for the dollar," said Mungai.

Traders also said dollar demand from importers would ease as the holiday season approaches, while some foreign-funded companies would sell dollars to complete their annual budget spending, which could see the shilling strengthening.

The shilling has been under pressure after attacks on police and army posts this weekend along Kenya's Indian Ocean coastline where previous attacks by militants scared away visitors and prompted Western nations to issue travel advisories. The latest attacks threatened the already ailing tourism sector, a key source of hard currency, traders said.