Kenya shilling seen firmer on tea inflows
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The Kenyan shilling was seen stronger against the dollar on Tuesday on inflows from tea exporters, while tax payments due this week were expected to tighten liquidity and drive up interbank rates.
The weighted interbank rate rose to 15 percent on Monday from 13.8 percent a day earlier after the central bank absorbed excess shilling liquidity from the market for a sixth straight day, for a total 31.1 billion shillings ($374 million).
But the central bank received no bids for the 5 billion shillings it planned to absorb through repurchase agreements on Monday. Traders said the central bank was unlikely to receive any bids if it entered the market to reduce liquidity.
At 09:05 SA time, banks quoted the shilling at 83.10/25 per dollar, barely changed from Monday's close of 83.10/20.
“There is diminished dollar demand. We might see some tea inflows today and that will help boost the shilling,” said Dickson Magecha, a trader at Standard Chartered Bank.
Magecha said the average interbank level, determined by commercial banks borrowing among themselves, would likely rise to the central bank rate of 18 percent in the coming days due to the tax payments and an upcoming 2-year bond auction worth 5 billion shillings.
A Bank of Africa report said tax payments would help the local currency to firm against the dollar.
Traders said risk aversion following surging Spanish borrowing costs above 6 percent, was yet to filter into the local market. High interest rates in east Africa's largest economy have attracted some foreign investors, but investment inflows into frontier markets such as Kenya tend to tail off when international uncertainty rises.
Yields on Kenyan three-month bills soared as high as 20.8 percent in January after the central bank embarked on an aggressive tightening spree to rein in inflation and prop up the currency, but have since fallen back to 16 percent as price pressures have eased slightly.
The local currency is up 2.3 percent this year supported by tight monetary policy and offshore dollar inflows into high yielding government securities. - Reuters
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