CBK action lifts shilling; shares down
28 March 2014, 08:25
Nairobi - The Kenyan shilling strengthened against the dollar on Thursday after the central bank moved to take excess liquidity out of the market. Shares drifted lower.
At the 1300 GMT close of the market, leading commercial banks posted the shilling at 86.40/50 per dollar, up from Wednesday's close of 86.60/70.
The central bank took 6.35 billion shillings out of the market through a repurchase agreement (repo) at a weighted average interest rate of 8.248 percent. It had sought to mop up 10 billion shillings but only got bids for 6.35 billion shillings ($73.09 million).
"Central bank came in with a repo which drained excess liquidity from the market, thereby making the shilling strengthen," said Sheikh Mehran, a trader at KCB Bank.
The central bank's action followed a drop in the overnight borrowing rate on the interbank market to 8.1425 percent on Wednesday from 8.4044 percent the previous day.
Lower short-term interest rates usually make it slightly cheaper for banks to fund long dollar positions, exposing the shilling to downward pressure.
On the stock market, the benchmark NSE-20 share index, edged down 0.2 percent to close at 4,958.62 points.
"Generally, the market looked weak," said Eric Musau, a research analyst at Standard Investment Bank.
Shares in national carrier Kenya Airways dropped 3 percent to close at 12.20 shillings each, after reports in local newspapers that it wanted exemptions from sales tax on purchases of spare parts for its aircraft, which have been driving up its costs.
"They are trying to get tax concessions, but that communication reaching the market is being viewed negatively," Musau said.
National Bank was the biggest loser, shedding 8 percent to close at 28.50 shillings a share, as the market continued to react to its full-year earnings report, issued the previous day.
National plans to raise 10 billion to 13 billion shillings in a cash call to fund expansion. [ID:nL5N0MN0UB]
"That (cash call) remains the key issue. It is going to be under pressure until that transaction is completed," said Musau.
In the debt market, bonds worth 2.17 billion shillings were traded, up from the previous day's 1.2 billion shillings.