Markets & Finance

Shilling eases on energy, telecom sector dollar demand

dollar shilling

PHOTO | FILE

Kenya's shilling lost ground on Monday as energy and telecoms companies sought dollars, but traders said tight liquidity was keeping the local currency from weakening further.

At 0714 GMT, commercial banks quoted the shilling at 105.30/50 to the dollar, compared with Friday's close of 105.15/25.

"It all boils down to fundamentals rearing its head: (dollar) demand. The people who can afford right now are the telecoms and energy. Most other people are on the sidelines," a senior trader at one commercial bank said.

The trader said the shilling was getting some relief from tight liquidity, which had led to rising interbank lending rates. Tight liquidity makes it expensive to hold dollars.

The weighted average interbank rose to 24.5569 per cent on Friday, from 23.3978 per cent on Thursday.

"The (overnight) rate scenario is the one which is giving us some respite. Now we are seeing 25 per cent, 26 per cent," the trader said.

A trader at another bank said the shilling would trade in a tight range ahead of the central bank's Monetary Policy Committee Meeting on Tuesday.

Thirteen of 15 analysts polled by Reuters poll forecast that the central bank will keep its main interest rate at 11.50 per cent on Tuesday.

READ: Governor summons bank CEOs as shilling hits 106 to the dollar

CBK action

central bank said on Monday it planned to mop up Sh10 billion ($95.01 million from the money markets in excess liquidity. The bank uses term auction deposits and repurchase agreements to absorb the liquidity, making it expensive to hold dollars, which partly lends support to the shilling.