Shilling weakens on dollar demand, travel warnings to weigh

Money Markets

The Shilling weakened on Monday as banks bought dollars. PHOTO | FILE 

By REUTERS

In Summary

• Traders have said some banks had taken short dollar positions to meet demand for shillings by the offshore investors seeking a government bond last week, but were now seeking dollars.

The Shilling weakened on Monday as banks bought dollars, with traders saying it would remain under pressure due to new travel warnings that could hurt the ailing tourism sector.

By 0817 GMT, commercial banks quoted the shilling at 92.30/40 to the dollar against Friday's close of 92.15/25.

One trader at a Nairobi-based commercial bank said the shilling lost ground at the start of the trading session as banks bought dollars on the interbank market, to cover their short positions.

"We've seen early dollar demand which pushed the shilling down," said the trader.

Traders have said some banks had taken short dollar positions to meet demand for shillings by the offshore investors seeking a government bond last week, but were now seeking dollars.

Joshua Anene, a trader at Commercial Bank of Africa, said the shilling is likely to remain under pressure as travel warnings issued by Western countries further dent the tourism industry and put pressure on hard currency inflows.

"Those travel warnings - they are quite effective in keeping visitors away," said Anene, who added the shilling is expected to be rangebound between 92.25-92.75.

READ: Fairview hotel owner blames travel warning for poor results

The shilling lost ground steadily since last year, partly due to a downturn in tourism following attacks by Islamist al Shabaab militants in the country. Tourists are a leading source of hard currencies for East Africa's biggest economy.

Britain and Australia on Friday issued separate travel warnings to their citizens, advising caution in capital Nairobi and popular resort town on Kenya's Indian Ocean coastline. Nairobi criticised the advisories, saying the security situation on the ground was improving.

READ: Kenya-UK in talks to lift travel alerts as hotels shut down

CBK action

TheCentral Bank of Kenya (CBK) said on Monday that it planned to mop up Sh17 billion ($184 million) in excess liquidity from the money markets using repurchase agreements and term auction deposits.

Mopping up excess liquidity makes it more costly to hold dollars, which partly lends support to the shilling.