Shilling firms against dollar, gains may be short-lived
Traders said the currency is likely to strenghten again in coming days. PHOTO | FILE
The shilling firmed on Wednesday, buoyed by dollar inflows from the tea sector, but traders said the currency was more likely to weaken again in coming days.
At 0730 GMT, commercial banks quoted the shilling at 88.20/88.35 to the dollar, slightly down from Tuesday's close of 88.35/88.45.
"There are inflows from tea sector sales," said John Njenga, trader at Commercial Bank of Africa.
Tea is one of Kenya's leading foreign currency earners and is sold at auction at the port city of Mombasa every Tuesday. Exporters typically convert their earnings into shillings to pay farmers and cover operational expenses.
The shilling, down about 2.3 per cent against the dollar this year, has been weakening over the past few weeks, even though liquidity has tightened. Traders say dollar inflows have been scant.
The weighted average lending rate on the interbank market rose to 12.4918 per cent on Tuesday from about 7.5 per cent in mid-July, causing a mini liquidity crunch.
"If that is tamed, we may see the shilling weakening further," added Mr Njenga.
Traders say they are also looking to see whether the central bank will intervene to prop up the local currency as it has done regularly over the past year.
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