Economy: Shilling strengthens as CBK sells dollars

Shilling strengthened yesterday after Central Bank of Kenya (CBK) sold dollars to commercial banks to stem persistent weakness in the local unit, traders said.

Commercial banks quoted the shilling at 103.60/80 per dollar in mid-morning trade, up from 104.15 when CBK intervened earlier in the session. It had slid more than one per cent in seven straight trading sessions. 

The shilling sank to its lowest level against the dollar in nearly five years earlier this week due to heightened political risk, a firmer dollar, concerns about export earnings and excess liquidity in the money markets.

 “CBK (Central Bank of Kenya) have come in, they have sold dollars,” said a trader at one commercial bank.

The bank also sought to mop up Sh15 billion from the market through seven-day repos. Weighted average interest rate on the overnight borrowing market for banks has hovered around two per cent last month, making it cheaper for banks to bet against the currency by buying up dollars.   

This is the second day, CBK is entering the market to support the shilling by directly selling dollars. Traders said the banking sector regulator pumped dollars into the foreign exchange market on Wednesday and sought to soak up excess liquidity after the shilling sank to its lowest level against the dollar in nearly five years.

The shilling has been one of Africa’s top performers this year. But it has lost 1.2 per cent against the dollar in the past six sessions.It fell to an intra-day low of 104.45/55 per dollar on Wednesday, from 103.20/30 on Monday last week, forcing CBK to intervene and send it back to the 104.00 level.

“They sold dollars and they have beaten it down to the current level of 104.05/25,” said a senior foreign exchange trader at a commercial bank. CBK also sought to mop up Sh10 billion from the money markets using seven-day repos, saying there was excess liquidity.                                   –REUTERS