The interbank rate began to ease at the end of last week after Central Bank of Kenya (CBK) injected liquidity into the banking system through the repo market.
Latest CBK data shows that the rate at which banks borrow from each other on emergency basis stood at 5.09 per cent at the close of business last Friday, down from 5.5 per cent at the beginning of the week.
“The overnight money market rate also begun to cool off at the end of the week after the CBK injected Sh10 billion in reverse repos and accepted bids of Sh7.28 billion at 10.01 per cent,” said Genghis Capital in its latest weekly report.
On Monday, the regulator was back in the market offering an additional Sh15 billion in reverse repos, eventually taking up bids worth Sh7.3 billion.
The CBK said that the move was because the market still showed signs of skewed liquidity distribution, which normally affects smaller banks.
Although the regulator was injecting cash into the system and with end-month dollar demand looming, the shilling gained ground slightly on the greenback.
By mid-afternoon, the shilling was exchanging at 101.67/87 to the dollar, compared to last Friday’s closing rate of 101.73/93.
Traders expect though that it could still come under pressure later in the week.
“In the new week we see the local currency testing 102 levels as dollar demand dominates the trifling foreign currency inflows,” said Commercial Bank of Africa in their daily market brief yesterday.
“That said, players remain on the lookout for possible intervention from the monetary authority in support of the shilling.”