The Kenyan shilling inched up against the dollar on Friday as banks took profits after the local currency lost 2.8 percent to fall to a new low in the previous session.
Traders said the shilling, beaten down in part due to a weaker euro on Thursday, was still under pressure from local importers - mainly from the energy sector - buying dollars to meet end-month obligations.
At 09:04 SA time, commercial banks quoted the shilling at 98.80/99.00 against the dollar, slightly stronger than Thursday's close of 99.00/20.
“The shilling has gained a bit this morning as banks take profit after the massive fall yesterday. This is a temporary correction as its still under pressure from importers,” said a trader with a commercial bank.
Trader said the shilling was in uncharted territory and its future direction depended on what measures the central bank might take to support it and movement in the euro as the debt crisis in the euro zone continues to rage.
“The shilling could retain a weakening tone as we near the end of the month with importer appetite for the greenback expected to rise, coupled with panic from importers,” said Bank of Africa in a daily report to its clients.
“In the medium to long term, with weaker economic fundamentals in most European countries threatening the strength of the euro, the shilling could (follow suit),” it said.
Market players say the central bank, which raised its benchmark rate by 75 basis points to 7.0 percent last week and has sold an unspecified amount of dollars three times this month, was running out of options to support the shilling.
The shilling has lost 23 percent against the greenback this year, battered by double-digit inflation, deteriorating balance of payments and a crisis of confidence in Kenyan monetary policymaking.
“Unless there is some serious selling of dollars by the central bank or they raise rates extremely high and attract some foreign investor dollars, it would be hard to contain the shilling's fall,” said the trader.
“But raising interest rate could crowd out small and medium-sized businesses that the current government has been struggling to support since 2002 to help spur growth in the economy.” - Reuters
