Currency dealers focus on CBK for direction of shilling
Commercial banks quoted the shilling at an opening average of 87.30/80 units to the dollar, later closing little changed at 87.40/60. FILE
The shilling was steady in Monday’s trading ahead of the Central Bank’s Monetary Policy Committee (MPC) meeting Tuesday, expected to decide on the key policy lending rate for the next two months.
Commercial banks quoted the shilling at an opening average of 87.30/80 units to the dollar, later closing little changed at 87.40/60.
“Ahead of the MPC meeting, market participants tend to play it safe and hold their positions. The market is anticipating that the regulator will hold the rate as it is,” said Commercial Bank of Africa senior trader Joshua Anene.
The policy rate is currently at 8.5 per cent. During the last MPC meeting in July, CBK retained its signalling rate at 8.5 per cent, balancing between the need to spur lending through reducing the cost of commercial bank loans and the need to stabilise the shilling and check inflationary pressures.
The local currency was steady in August, exchanging largely within the 87.30/70 range.
Emerging markets’ currencies have in recent months faltered against the dollar, especially the Indian rupee and South African rand.
Both of these currencies have been on a downward slide against the US currency in recent weeks, with the rand dropping to 10.28 units to the dollar last week, its lowest level since March 2009.
The rupee last week depreciated to its lowest level of about 66 units to the dollar, and its weakening has implication on trade with Kenya, given that India remains one the biggest exporters of goods to Kenya.
Banks also helped the shilling firm slightly towards the end of last week, as they kept an eye on the possible changes to the base lending rate.
“The shilling firmed slightly on Friday as banks cut back dollar positions before the weekend,” said ABC Bank in a note to clients on Monday morning.
A move by the MPC to hike the base lending rate, Mr Anene said, would be informed by a need to tame the rising inflation before it gets out of hand.
The decision would also mean that the regulator is keen to forestall the possibility of a run like that of the rupee and the rand.
On the other hand, he said, an MPC decision to cut the lending rate would help spur economic growth, but at the expense of risking a further rise in inflation and weakening of the shilling.
Two weeks ago, the shilling extended its losses due to rising demand for dollars while tea export earnings were hurt by the turmoil in Egypt.
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