Foreign investor inflows seen supporting Kenyan shilling

The Kenyan shilling firmed slightly on Friday and traders said they expected further gains in coming days as offshore investors convert dollars to buy stocks and government bonds.

Nairobi's blue-chip index has already risen 20 per cent this year. March's peaceful presidential election, the stable currency and Kenya's relatively low inflation have all helped boost investor confidence.

READ: Foreign investors flock back to NSE after polls boost

At 0725 GMT, commercial banks quoted the shilling at 83.70/90 to the dollar, compared with Thursday's close of 83.80/90. The stock index, which is only calculated at close of trading, ended 0.8 per cent up on Thursday at 4,955.61 points.

"It (the shilling) is expected to be stronger on the back of strong foreign investment flows possibly into the stock market and other investments," said Sheikh Mehran, a senior trader at Kenya Commercial Bank.

Traders said Kenyan government paper continued to lure foreign investors even though yields are falling after the central bank cut its key lending rate by a percentage point to 8.5 per cent earlier this month.

"We are seeing a lot of flows coming in from offshore people investing in equities and government securities. Although the rates are slowly coming down, they are still positive when you compare against inflation at 4.14 per cent," said Ignatius Chicha, head of trading at Citibank.

The weighted average yield on the 91-day Treasury bill was 9.376 per cent, lower from 9.887 per cent last week.

Traders said they expect the shilling, which has gained 2.8 per cent versus the dollar year-to-date, to trade in the 83.50-84.00 band.

Some market players have said lower lending rates could spur demand for imported consumer goods that could pressure the currency in coming weeks.