The Kenyan shilling inched down against the dollar on Friday as buying by importers exacerbated broad global strength for the US currency, while stocks extended their losses.
Traders said the shilling was likely to resume its recent bullish form once the end-of-month importer appetite for foreign exchange was satisfied, due to a liquidity crunch that has made it hard to fund dollar holdings.
“Anything you have, you have to liquidate into Kenya shillings because it doesn't pay to hold dollars at 30 percent,” said a senior trader with a leading commercial bank.
An acute funding squeeze has sent rates on the interbank market soaring to above 31 percent, prompting banks to cut their dollar positions and propelling the shilling higher.
The shilling has risen 15 percent off its record low of 107 on October 11 after policymakers shifted to a more aggressive monetary stance to fight inflation and currency volatility.
“When the present (dollar) demand is taken out, those positions will become even shorter,” said the trader, adding that the shilling was likely to head to the 88.50 level soon.
At the market's 15:00 SA time close, commercial banks posted the shilling at 90.30/50 against the dollar, down from the previous day's close of 90.00/30.
Squaring of short positions ahead of the weekend, when commercial banks usually align their books, also helped weaken the shilling.
Peter Mutuku, a trader at Bank of Africa, said the shilling's fall on Friday may have also been triggered by worries over the impact of worsening debt problems in euro zone.
On Friday, Central Bank of Kenya (CBK) governor Njuguna Ndung'u told a Parliamentary Select Committee that measures the bank had taken to stabilise the shilling exchange rate, including dollar sales, had borne fruit.
The shilling is off a record low of 107 hit in October to and hit a high of 89.65 this week, a level last seen in mid-July.
“CBK has injected $118.25 million in the market to stabilise the exchange rate since July 2011,” Ndung'u told the committee.
Data from the central bank showed current account deficit had widened to $4 billion by September, with its ratio to the GDP at 12 percent, above a 5-8 percent band that is considered sustainable for low to medium income oil-importing countries.
“Widening current account deficit due to increased demand for imports mainly to support the economic recovery process has been exerting pressure on the exchange rate,” Ndung'u said.
On the Nairobi Securities Exchange, the benchmark NSE-20 Share index extended its losses but stayed within its month-low, shedding 36.11 points to 3,252.59 points suppressed by substantial foreign sales notably in the financial stocks.
Robert Munuku an analyst at Drummond Investment Bank said the fourth quarter performance of commercial banks was dented due to reduced earning from the fixed income market and interest income.
Corporative Bank was the session's biggest loser, falling 5.15 percent to 12.70 shillings.
Government bonds worth 1.1 billion shillings ($12.20 million) were traded down from Thursday's 1.5 billion shillings. - Reuters