Summary
- Banks quoted an average of 103.00 Thursday morning interbank trading, before easing back to 102.85 in the afternoon on the back of liquidity withdrawal by the regulator.
- It had closed trading Wednesday at an average of 102.90.
- Traders reported that importers were looking to stockpile dollars in light of the weakening shilling, while banks were also actively buying perhaps with an eye on the chance to sell on to CBK.
The shilling continued to experience depreciation pressure
Thursday on heightened dollar demand as the market reacted to plan by
the Central Bank of Kenya (CBK) to purchase dollars from the market to
bolster forex reserves.
Commercial banks quoted an
average of 103.00 in morning interbank trading, before easing back to
102.85 in the afternoon on the back of liquidity withdrawal by the
regulator. It had closed trading Wednesday at an average of 102.90.
Traders
reported that importers were looking to stockpile dollars in light of
the weakening shilling, while banks were also actively buying perhaps
with an eye on the chance to sell on to CBK.
“The local
foreign exchange market was in a frenzy from the onset as key greenback
buyers emerged from the shadows to compete for the locally available
dollar stockpile,” said NCBA in a note to clients.
“The expectation is that the shilling will trade on the defensive if the rush for the greenback by corporate buyers endures.”
CBK announced on Tuesday that it will buy a total of $400
million (Sh41.2 billion) from commercial banks in the next four months—
$100 million (Sh103 million) per month— in order to bolster its forex
reserves that at the end of last week stood at $8.409 billion (Sh866
billion).
The purchase, the CBK said, will bolster its
preparedness to deal with rising uncertainties in the global market over
the coronavirus outbreak.
The banking regulator said
shifts across the globe, including a significant drop in oil prices that
eased pressure on Kenya’s imports, have opened a window for a more
formal dollar purchase, arguing that it will purchase a minimum $1
million (Sh100 million) from banks at prevailing rates in each deal.
Before
the announcement was made on Tuesday, the shilling was trading at an
average of 101.37 to the dollar, having held onto a tight range since
the beginning of the year. CBK has been relying largely on liquidity
management to prevent volatility. On Thursday, CBK withdrew Sh20 billion
through term auction deposits, having indicated that the market was
exhibiting excess liquidity.
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