Kenyan shilling treads water, eyes on Central Bank
11 December 2013, 17:45
Nairobi - Kenya shilling moved sideways on Wednesday, and traders said all eyes were on the central bank for signs it would continue taking liquidity out of the market.
Commercial banks quoted the local currency at 86.65/85 at 0740 GMT compared with 86.70/86.80 at Tuesday's close.
"I think they will be back in the market because if rates on the overnight market come down there will be pressure on the local currency because there is no point holding shillings," said Ignatius Chicha, head of trading at Citibank in Nairobi.
The Central Bank of Kenya has absorbed liquidity from the money market in the last three consecutive sessions after the overnight rate dipped below 7 percent on Friday.
By taking out excess liquidity, the central bank makes it relatively more expensive to hold onto long dollar positions, which in turn helps the shilling strengthen.
The market looked set to be a net seller of dollars in the second half of the month, market players said, as corporate demand for the U.S. currency tapers off over the Christmas holiday.
"We expect dollar inflows to outstrip demand as we head towards the close of the month," said Bank of Africa Kenya in a daily briefing.