Central Bank to mop up Sh8b to strengthen shilling
The action of mopping up liquidity tends to support the shilling by making it more costly to hold dollars. PHOTO | FILE | NATION MEDIA GROUP
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The shilling has weakened by about 4.1 per cent against the dollar this year, mainly due to a slump in hard currency inflows from tourism following a spate of attacks by Islamic militants.
The Central Bank of Kenya (CBK) said on Wednesday it was in the money market to mop up Sh8 billion ($88.94 million) in excess liquidity, using repurchase agreements (repo) and term auction deposits. By mopping up liquidity, the bank makes it relatively costlier to hold onto long dollar positions, which in turn helps strengthen the shilling.
The Kenyan shilling hovered near a three-year low against the dollar on Wednesday. At 0730 GMT, commercial banks posted the shilling at 89.90/90.10 to the dollar, little changed from the previous day's close of 89.95/90.05. The currency on Tuesday hit an intra-day low of 90.00/90.10, its lowest level since November 2011.
"I think everyone is wondering about (central bank) intervention," said Nahashon Mungai, a trader with Kenya Commercial Bank. "They typically defend the 90 level."
The shilling has weakened by about 4.1 per cent against the dollar this year, mainly due to a slump in hard currency inflows from tourism following a spate of attacks by Islamic militants. Inflows of dollars from tea exports have also dwindled owing to weaker prices caused by a global glut of the commodity.
CBK has regularly drained excess liquidity from the money markets in recent months. It has in the past also sold dollars to support the local currency when the shilling touched 89.50 levels.
