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Shilling improves versus dollar

03 August 2015, 21:32

Nairobi - Kenya's shilling strengthened against the dollar on Monday, helped by tight liquidity and expectations that central bank will raise its lending rate at its next meeting this week.

At 0726 GMT, commercial banks quoted the shilling at 101.60/80 to the dollar, from Friday's close of 102.35/45.

Traders said the shilling had strengthened due to tight liquidity in the money markets, which had pushed interbank lending rates higher.

The weighted average interbank lending rate rose to 19.2121 percent on Friday from 18.4628 percent a day earlier, and hit an intraday high of 20 percent.

"We are looking at very tight liquidity for the shilling, with overnight rates touching 20 percent on Friday. Tight liquidity is helping out the shilling at the moment," said a senior trader at one commercial bank.

The shilling had also gained on expectations that the central bank will raise its benchmark lending rate at its meeting on Aug. 5, traders said.

The central bank's Monetary Policy Committee (MPC) has raised the rate by 3 percentage points since June, to 11.5 percent, to offset the weakening shilling.

A Reuters poll of 11 analysts shows the rate is expected to rise to 12 percent.

"As we go to MPC meeting, we expect them to tighten further. So most people who had long (dollar) positions are shedding them," a trader at a second commercial bank said.

The central bank said it planned to mop up 11 billion shillings ($108 million) from the money markets on Monday.

- Reuters


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