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Shilling gains as tighter liquidity balances dollar demand

 shilling
Banks quoted the shilling at an average of 100.60 units to the dollar in afternoon trading Thursday. FILE PHOTO | NMG 

The shilling regained slight ground to the dollar Thursday despite ongoing importer demand for hard currency as liquidity tightened in the market.

Commercial banks quoted the shilling at an average of 100.60 units to the dollar in afternoon trading Thursday, compared to Wednesday’s closing average of 100.70 units.

While traders told Reuters news agency reported dollar demand was alive from merchandise and corporate importers, CBK said the liquidity side showed a square market, informing its decision to sit out open market operations Thursday.

On Wednesday, the market was experiencing excess liquidity, forcing CBK to mop up Sh15 billion through repurchase agreements where bids stood at Sh40.05 billion.

In its daily update for Tuesday this week, NCBA Bank #ticker:NIC predicted that the local currency is likely to remain flow-driven in the short term adding that it could be as strong as 98.50 units to the dollar, but also as weak as 102.50 to the same hard currency.

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“We expect the home unit to trade within the 98.50-102.50 range in the short term, as direction remains flow driven,” said the bank.

Dyer and Blair Investment Bank predicts in a note to investors that the Kenyan currency is likely to be in the range of 100.0 to 103.0 units to the greenback in the course of this year due to the significant growth in imports. The investment advisors also see the official foreign exchange reserves as sufficient to maintain the shilling’s strength.

“In the absence of a material growth in imports, the shilling will remain largely stable against the dollar (100.0-103.0),” said Dyer and Blair.

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