Kenyan shilling weakens as bond impact fizzles, stocks rise

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An analyst said the shilling also weakened after the central bank said it would not be mopping up excess shilling liquidity as the market was square, the first time in more than a month that the bank has stayed out.

Kenya's shilling weakened slightly on Wednesday as banks bought dollars to cover their short positions, while bargain-hunters buoyed stocks. The local currency of East Africa's biggest economy closed at 89.30/40 to the dollar, from Tuesday's close of 89.25/35.

The shilling had firmed on Tuesday, supported by this week's announcement of a new sale of a 12-year government bond that attracted hard currency from offshore investors, traders said. The central bank had on Tuesday announced an additional sale of a Sh20 billion ($220 million) infrastructure bond.

"The bond had a brief impact, but that has fizzled out. For now the shilling has lost ground due to some interbank dollar demand, the guys were covering short dollar positions," said Sheikh Mehran, head of trading at I&M Bank.

Mehran said the shilling also weakened after the central bank said it would not be mopping up excess shilling liquidity as the market was square, the first time in more than a month that the bank has stayed out. The action of mopping up liquidity tends to support the shilling by making it more costly to hold dollars.

Traders forecast the shilling would trade between Sh89.10 to Sh89.50 in the next few days. "It won't breach the Sh89.50 resistance level," Mehran said, referring to the level where the central bank intervened to support the currency with dollar sales last month.

On the Nairobi Securities Exchange, the main NSE-20 Share Index rose 22.55 points or 0.43 per cent, to close at 5,221.44 points. Stock analysts said most of the companies on the NSE-20 closed higher, driver by bargain hunters taking advantage of price declines at the market.

Among the top gainers were investment firms, Centum Investment Company, which rose 8.3 per cent to close at 65 shillings a share, while British American Investments added 7.3 per cent to Sh29.25.

Silha Rasugu, research analyst at Genghis Capital, said following the recent slump, "we were likely to see both speculative activity and bargain investors picking up shares at their lows in anticipation of corporate actions coming up" when the companies report their earnings for the period September.

On the secondary market, government bonds valued at Sh4.23 billion were traded, up from Sh4.20 billion on Tuesday.