Kenyan shilling at near 3-year lows, CBK action eyed

Money Markets

 

The CBK building in Nairobi. Traders say they're watching to see if Central Bank will intervene to prop up the shilling. PHOTO | FILE | NATION MEDIA GROUP 

By REUTERS

In Summary

• The bank intervened in September when the shilling reached 89.50 levels, by selling dollars and aggressively mopping up local currency through repurchase agreements (repos).

The Kenyan shilling was steady on Tuesday, hovering near three-year lows after weekend attacks in the country, and traders said they were watching to see if the central bank would intervene to prop up the shilling.

At 0830 GMT, commercial banks posted the shilling at 89.55/65 to the dollar, barely changed on Monday close of 89.60/70, which was its weakest level since December 2011.

"The market is trying to figure out if the central bank will do anything or will it let it slide off," said a trader at one Nairobi-based commercial bank. "We wait to see whether it will mop up liquidity or it will sell dollars," the trader said.

The bank intervened in September when the shilling reached 89.50 levels, by selling dollars and aggressively mopping up local currency through repurchase agreements (repos). By mopping up liquidity, the bank makes it relatively costlier to hold onto long dollar positions, which in turn helps strengthen the shilling.

Traders say the shilling is expected to stay under pressure in coming days due to insecurity fears along Kenya's tourism-reliant Indian Ocean coast where over the weekend suspected separatists attacked army posts. The attacks threatened the already ailing tourism sector, a key source of hard currency, traders said.

READ: Tourism in new threat after attack on barracks

Insecurity plagues East Africa's biggest economy, and attacks in the past year on the coast and in the capital have prompted Western nations to issue travel warnings, hitting the tourist industry, a big source of hard currency to the economy.

Traders also said they would wait to see what action would be taken by the central bank's rate setting committee, which is due to meet on Tuesday.

A Reuters poll of 14 economists found that the majority expect the bank to keep rates unchanged at 8.5 per cent.