Shilling loses ground, again

September 24, 2008

, NAIROBI, September 24 – The Kenya shilling on Wednesday traded in sight of the Sh74 level that it experienced last week as the market saw demand for dollars from the energy sector.

Stephen Kimani of Co-operative Bank’s Treasury Department told Capital Business that other dollar buyers were also offloading the shilling to raise money for their end-of-month obligations, in the absence of commensurate inflows.

The local currency breached a technical level of Sh73.50, Wednesday, creeping towards the Sh74 mark.

“A technical level is what has been considered by currency analysts as the next expected level of a currency pair while a psychological level is what the market naturally anticipates to be the next level of a pair,” Mr Kimani explained.

The shilling opened the day posted at Sh73.25 buying and Sh73.35 selling but lost Sh0.45 weighed down by an upsurge in end month corporate and inter-bank demand as the market continued to experience shortage of the American currency.

Dealers at Co-operative Bank said they expected the currency to remain bearish in the coming days with the Sh74 mark providing the next psychological level for the local unit.

The Sterling Pound closed the day at Sh136.75 against Sh136.95 while the Euro traded at Sh107.95 against Sh108.10. 100 Japanese Yen traded Sh69.30 against 69.50 and to the South African Rand the local currency bought at Sh9 against Sh9.10.

The Kenyan currency was trading USh22.50 buying and USh22.60 selling, while against the Tanzania currency, the shilling dealt at TSh15.90 against TSh16.

When the dollar-shilling exchange rate went above Sh74 last week, the Central Bank of Kenya (CBK) offloaded dollars in a bid to stabilise the market.

The intervention was meant to reduce the shilling’s vulnerability in the absence of foreign currency inflows.  The local currency has been bearish and susceptible to the slightest movement in the demand and supply market environment. The traditional foreign exchange earners of agriculture and tourism have not been able to keep up with the local demand for the greenback.

Dealers also say the intervention could be CBK\’s strategy to ward off foreign exchange speculators who can initiate major price swings especially at this time when the local currency is unstable.

The financial regulator last week sold $19 million to the banks, over a two day period.

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