Shilling weakens slightly, CBK to mop up Sh10b

The Shilling weakened modestly early on Tuesday, weighed down by corporate demand for dollars and echoing falls by other currencies against the rising greenback.

By 0729 GMT, the shilling was trading at 90.80/91.00, slightly lower than Monday's close of 90.80/90. The shilling weakened steadily last year in part because of a downturn in tourism following a series of militant attacks. Tourists are a major source of dollars and other hard currencies for the east African nation.

Sustained corporate demand for dollars, jitters across emerging markets and thin dollar inflows into Kenya were all putting pressure on the shilling, said Duncan Kinuthia, head of trading at Commercial Bank of Africa.

"Now 91.00 (to the dollar) is in sight, so a breach of 91.00 could open up towards 91.50," he said. "General weakness will remain. I don't see anything supporting a strong shilling for the time being."

Another senior trader, who asked not to be identified, said the central bank could intervene to offer dollars to support the shilling around the 91.00 level. But he also said such action was only like to slow any decline rather than halt it.

"We are seeing a bit of dollar demand from the corporates and the dollar is also strengthening globally, which is something that is affecting the local currency," the trader said.

CBK action

Central Bank of Kenya (CBK) later said that it planned to mop up Sh10 billion ($110 million) in excess liquidity from the money market using repurchase agreements, or repos.

By mopping up excess liquidity, the central bank makes it more costly to hold dollars, which tends to support the shilling .