Shilling defies CBK rate cut to stay steady

The shilling remained within the month’s range of between 100 and 101 against the dollar even as the Central Bank of Kenya (CBK) cut its benchmark lending rate by a percentage point to 10.50 per cent on Monday.

The currency had rallied earlier in May to hit 100 to the dollar, its strongest level in a year after it slipped to 106.1 against the greenback in September 2015.

READ: CBK lowers policy rate for the first time in 9 months

Reuters reported that commercial banks quoted the shilling at 100.95/05 to the dollar on Tuesday compared with Monday’s close of 100.90/101.00.

Import cover

The currency has held steady despite dollar demand for dividend and risk of rising oil prices.

READ: Poor dividend season keeps shilling strong

“Foreign currency holders may be keeping their funds within the country for reinvestment since there is a loss to be booked for dollar depreciation. This may be a good thing as it leaves capital available locally. Unfortunately, it means new money does not come in,” Deepak Dave of Riverside Capital said. Analysts, however, noted that the CBK had to intervene and sell dollars to prop up the shilling.

CfC Stanbic Bank regional economist, Jibran Qureishi,  noted that going by the CBK data, the amount of foreign reserves reduced for the second week in a row after hitting a record of 5.01 months of import cover in the first week of May.

CBK is currently holding $7.662 billion in foreign reserves which is equivalent to 4.99 months of import cover according to the weekly statistical bulletin against the earlier 5.1 months.