Shilling edges lower against dollar on high liquidity

The shilling edged lower against the dollar Wednesday as pressure came in from excess liquidity in the market and hard currency demand outweighing supply.

Commercial banks were quoting the shilling at an average of 103.85 units to the greenback in afternoon trades, compared to Tuesday’s closing rate of 103.82 units.

Dealers said that liquidity remained elevated in the market, arising out of government payments, while importer demand for dollars was also weighing on the currency.

Central Bank of Kenya came into the market yesterday to mop up excess liquidity, taking out Sh15 billion in repurchase agreements from investor bids worth Sh20.35 billion.

The shilling has been oscillating between the 103 and 104 level against the dollar in recent weeks, bar for a brief foray into the 102 level two weeks ago.

A weakening shilling raises the prospects of higher cost of living due to the country’s dependence on imports, which are paid for in dollars.

It however works out as an advantage to exporters, who get to earn more when they make their sales in dollars that are then converted to shillings upon repatriation back home.

Inflation for August stood at five percent compared to 6.3 percent in July, reflecting lower food prices.