Kenya's shilling tests 88 level, eyes on central bank

Money Markets

The shilling tested the psychologically important 88 per US dollar level in early May 27, 2014 trading, turning market attention to the central bank, which a day earlier said it was ready to defend the under-pressure currency against volatility. Photo/FILE 

By Reuters

In Summary

• Traders said persistent demand for dollars from corporate clients paying dividends to foreign shareholders and making routine month-end payments were weighing on the shilling.

Kenya's shilling tested the psychologically important 88 per US dollar level in early Tuesday trading, turning market attention to the central bank, which a day earlier said it was ready to defend the under-pressure currency against volatility.

Traders said persistent demand for dollars from corporate clients paying dividends to foreign shareholders and making routine month-end payments were weighing on the shilling. On top of that, a recent spate of bombings in the country has shaken confidence in the local currency.

A convincing breach of the 88 level would likely herald further weakening, said Duncan Kinuthia, head of trading at Commercial Bank of Africa.

The Central Bank of Kenya signalled its intent to stem the shilling's steady weakening by selling dollars on Friday and then saying it had sufficient foreign reserves to cushion the currency against shocks.

READ: CBK says it’s holding enough reserves to cushion shilling

"They may come in and come in aggressively if they see further weakness," Mr Kinuthia said. "I expect them to be concerned if they see us approaching the 88.50 level."

At 0730 GMT, commercial banks priced the shilling at 87.85/88.05, barely moved from Monday's close.

The central bank's governor, Njuguna Ndung'u, blamed seasonal factors including the foreign dividend payments for volatility in the currency market over the past two weeks. He did not mention the security challenges facing the country