Money Markets
Dealers warn the local unit may continue falling should the regulator not step in. PHOTO | FILE
By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com
The shilling Monday opened the week at an official
32-month low of 88.33 to the dollar amid sustained demand pressure from
importers and delayed impact of insecurity incidents.
Dollar demand by oil marketers and industrialists has piled
pressure on the local unit despite tight liquidity which would normally
help to buoy the shilling through its limited supply.
Commercial banks quoted the currency at an average
of 88.60/70 with dealers saying low inflow of dollars coupled with
end-month demand is pushing the currency down.
According to Robert Gatobu of the Bank of Africa,
the tight market liquidity has only helped to keep the shilling from a
sharp decline but has not been sufficient to protect the local unit from
depreciating against the dollar in the face of increased demand and low
hard currency inflows.
“We are now seeing the real effects on dollar
inflows of the insecurity that gripped the country sometime back, which
could not have been felt immediately,” Mr Gatobu said.
“Unless there is intervention from the regulator we
might see the shilling touch the 89 level since we don’t see any other
source that will increase the inflows at the moment,” said Mr Gatobu.
ALSO READ: Shilling weakens on poor dollar supply
He said the current subdued government spending
means the sectors, such as the construction industry, that depend on
government payments for cash flow are likely to delay their dollar
demand into early September as the payments are gradually effected.
According to CBK, the money market remained
relatively tight through last week, owing to the continued remittance of
taxes to the Treasury by commercial banks and the pending government
payments.
CBK, which injected Sh38 billion into the market
through reverse repo in the first week of August, was absent from the
money markets in the past week even as the shilling went above the 88
level.
“The Central Bank liquidity management committee
stayed out in order to allow the market to redistribute the available
liquidity,” said CBK in its latest weekly bulletin.
Central Bank has in the past been seen to come into
the market when the shilling touches the 88 level to the dollar, with
forex dealers saying that the gradual depreciation this time round could
be one of the reasons the regulator has stayed off the market so far.
The shilling has been ceding ground to the dollar gradually in the past two months as opposed to a sudden drop.
CBK has always stressed that it does not target a
particular level or direction of the exchange rate, but comes in to stem
excessive volatility brought by external shocks or to cover a
short-term shortage of foreign exchange liquidity in the market.
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