The shilling gained further ground on the dollar on Tuesday as support continued to come in from portfolio investor inflows into the country.
Commercial banks quoted the currency at an average of 100.77 to the dollar in mid-afternoon, having opened the day at an average of 100.91.
This brings the gain against the dollar in the first two trading sessions of the week to 63 cents, having closed last week at an average of 101.40.
Traders say that banks have been in the market to sell dollars, with only a limited number of buyers available.
“The foreign currency market became loopsided towards the supply side as more interbank foreign currency sellers jumped into the fray for the few buyers around,” said Commercial Bank of Africa (CBA) in a daily currency markets note.
“In light of recent interbank activity witnessed in the local foreign exchange market, the shilling could remain supported in the near term by increased dollar inflows.”
The gains could mark a return to the general trend of slow appreciation that the shilling has shown against the dollar this year, having been interrupted towards the end of last month by the normal spike in greenback demand from importers that briefly took it above the 101 level.
The Central Bank of Kenya (CBK) expects the shilling will remain well supported in the near term by inflows from the diaspora, tourism and horticulture exports, which should mitigate the higher import bill due to rising price of oil.
As a result, the CBK projects the current account deficit will narrow to 5.4 per cent by the end of the year, from 6.1 per cent at the end of March and 6.7 per cent in December.
The narrowing of the deficit this year has helped strengthen the shilling, which was exchanging at 103.30 at the beginning of the year.