NAIROBI: The shilling strengthened Thursday when the Central Bank sold dollars after the currency touched a new three-year low earlier in the session, traders said. At the opening of trade, commercial banks posted the shilling at 90.30/50 to the dollar, firmer than Wednesday's close of 90.55/65.
Before the Central Bank's intervention, the shilling had fallen to 90.65/75, its lowest level since November 2011. "Whatever intervention happened is not strong enough to give the support required," said one trader at a Nairobi-based commercial bank. A second trader said the Central Bank appears to have set 90.60 as the new level which is plans to defend.
The Central Bank also sold dollars last Wednesday to prop up the shilling. The currency has lost 4.8 per cent against the dollar so far this year.
EXCESS LIQUIDITY
The bank Thursday also sought to mop up Sh5 billion from the money market in excess liquidity, a move that could also support the local currency. By absorbing excess liquidity, the banking sector industry regulator makes it relatively more expensive to hold long dollar positions, which partly lends support to the shilling.
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A fall in tourist numbers following a spate of Islamist attacks and a decline in the price of tea, both key sources of hard currency inflows for east Africa's biggest economy, has put pressure on the shilling throughout the year.
The weakening value against the dollar also means that external debt and interest repayments, which have to be made in dollars, will become more expensive for the country in the shilling equivalent of the amounts.
Joshua Anene, a trader at Commercial Bank of Africa, said the outlook for the shilling in coming days remains negative unless the Central Bank intervenes. "We expect the shilling to actually test 91," Anene said.
