Kenyan shilling firms on tea inflows

Published Nov 16, 2011

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Kenya's shilling pared losses to close stronger against the dollar for the first time this week on Wednesday, helped by tea sector exporters selling the greenback, while stocks fell for a sixth straight day.

The local currency touched an intra-day low of 94.60/80 before bouncing back to close at 93.60/90, stronger from Tuesday's close of 94.00/20.

“We saw the shilling dip a bit in the morning on telecom orders, but it gave some ground later in the day as dollar inflows from the tea sector came in,” said Sameer Lagadia, head of trading at Diamond Trust Bank.

The shilling is 13 percentage points off its record low of 107 per dollar hit on October 11. Traders said they expected it to firm more as liquidity in the market is tight after a sharp increase in the central bank's key interest rate earlier this month to support the currency and rein in inflation.

The bank is set to hold its next Monetary Policy Committee meeting on December 2.

“Rising interest rates in the local unit means holding long dollar positions is prohibitive, causing clients to sell foreign currency into the shilling which has a high yield at the moment,” said Bank of Africa in a daily report for clients.

In the money market, the weighted average interbank rate eased to 30.0108 percent on Tuesday from the four-year high of

30.8172 percent it hit on Monday.

The central bank discount window rate has remained at 22.5 percent since November 10, its website showed.

“The interbank rate may stagnate at this level because the discount window is way below. It's cheaper to fund from the central bank,” said Duncan Kinuthia, head of trading at Commercial Bank of Africa.

At the Nairobi Securities Exchange, the benchmark NSE-20 Share Index shed 0.55 percent to close at 3,355.67 points as investors rattled by double digit inflation - 18.91 percent in October and expected to rise - sold shares.

“There is very little demand for stocks in the market and the supply side is quite resilient as local investors seek money to take care of the rising cost of living,” said Ronald Lugalia, an analyst at Afrika Investment Bank.

“The liquidity crunch in the market is also cutting down on investors' participation.”

Shares in National Bank of Kenya dropped heavily for a second day, falling 5.21 percent to 22.75 shillings after posting a drop in pretax profit for the first nine months of the year.

In fixed income, government bonds worth 570 million shillings ($6.1 million) were traded, down from 2.21 billion shillings on Tuesday as investors stayed away due to the tight liquidity and rising yields.

“A lot of volumes we've seen in recent auctions are just buy-sell backs as clients try to get quick money,” said Mercy Njoroge, a trader at Tsavo Securities.

Kenya sold its 182-day Treasury bill at a market average yield of 15.738 percent in a heavily undersubscribed auction on Wednesday, higher than the 15.661 percent at last week's sale. - Reuters

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