Shilling steady against dollar on rising public debt interests

The shilling opened the week steady against the dollar as rising government debt yields helped counter the effect of surging demand for the greenback from exporters.

The yield on the 91-day Treasury bill rose to touch 10.4 per cent, up from the 8.75 per cent at the close of the last trading week on Thursday.

Rising government paper yields could help the currency maintain a firm standing this week, with the effect of making the government debt more appealing, especially to banks, which hold 50 per cent of Treasury securities.

Banks quoted the shilling at an average 87.15/65 a dollar on opening of trading yesterday, unchanged from Thursday’s closing average of 87.40 with Friday being a national holiday.

Tight liquidity

The weighted average yield on Kenya’s 182- and 364-day Treasury bills rose for the seventh straight week at auction on Wednesday, while the 91-day T-bill jumped to 10.406 per cent on Thursday from 8.754 per cent at previous sale.

“With the T-bill rates shooting up, that could become supportive for the shilling going forward,” head of trading at Commercial Bank of Africa Duncan Kinuthia said.

The shilling, which has fallen about 1.5 per cent this year, has been trading in the range of 87.25-87.55 for two weeks, largely due to tight liquidity in the money markets.

Central Bank of Kenya (CBK) said that to alleviate the tight liquidity it injected Sh11.8 billion through net redemption of repo securities.

“The tightness is attributed to accumulation of deposits by government at the CBK awaiting finalisation of payment arrangements for the reconstituted government ministries,” said CBK in its weekly report.

Currency traders have, however, projected that the shilling would weaken further to the dollar in the course of the year, citing a widening balance of payments and the possibility of reduced domestic borrowing.

Additional reporting by Reuters