Kenyan shilling weakens on dollar demand, bombings

The Kenyan shilling slipped to an eight-month low on Monday on investor concerns over security in east Africa's biggest economy following Friday's bombings in the capital Nairobi and as manufacturers bought dollars.

At the 0930 GMT, the shilling was at 87.70/90 to the dollar, weaker than Friday's 87.50/60 close and its lowest since August 30 last year, when it touched 87.70 to the dollar.

The currency has come under pressure from negative news including the latest blasts, in which at least 10 people were killed, and travel warnings that led to evacuation of tourists from coastal hotels under armed guard.

Britain, the United States and other Western governments have warned holidaymakers against visiting Kenya.

Dollar buying from manufacturers and banks also helped weaken the shilling, traders said.

"The shilling has quickly depreciated since we opened this morning. There is buying from manufacturers and banks as well as the continuous threats to the nation's security," said Kenya Commercial Bank senior trader Sheikh Mehran.

"The shilling's strength now largely depends on how the government deals with the security issue, investors are however wondering, how safe are their investments? Foreign direct investment will reduce because of the security threats."

Mehran said he expected the shilling to trade at 88.50 by the end of the week, saying the demand for dollars was strong.

Traders said any efforts by the central bank to mop up liquidity would have only a limited impact on the shilling's fall, because there were significant buy orders for the dollar.

Kenya's central bank sought to mop up Sh2 billion ($22.84 million)from the market on Monday saying there was excess liquidity.

Friday's explosions came in the wake of blasts on May 3-4 in Nairobi and the port city of Mombasa - one at a luxury seaside hotel - that killed seven people.

Kenya blames a spate of bomb attacks over the past year on al Qaeda-linked Somali group al Shabaab.

Al Shabaab killed at least 67 people in a gun and grenade raid on a Nairobi shopping mall last September, claiming it as revenge for attacks on its fighters by Kenyan troops in Somalia.