NAIROBI (Reuters) - The Kenya shilling was steady against the dollar on Tuesday as dollar demand from importers slowed ahead of the holiday season, but traders said the local currency could firm in coming days helped by remittances and tourism inflows. The shilling has recovered 16.4 percent from a record low of 107 to the dollar hit on October 11 after the central bank adopted an aggressive monetary tightening stance, hiking its key lending rate 11 percentage points in four sittings to 18 percent. At 0651 GMT, commercial banks quoted the shilling at 89.40/60 against the dollar, barely changed from Monday's close of 89.35/55. "There is a bit of demand building up below 85.50. But (overall) guys are holding square positions at the moment," said Duncan Kinuthia, head of trading at Commercial Bank of Africa. "We could see the shilling gain mainly due to diaspora flows and tourism, coupled with lack of importers orders this holiday period." Remittances are the fourth-largest source of foreign exchange in the east Africa's biggest economy, after revenue from tea, horticulture and tourism, and are expected to hit a record high this year after surpassing 2010's full year total of $641.9 million by September. Importers also wind down business ahead of the Christmas/New Year holiday period and many are also affected by the closing of books ahead of the year-end. Charts showed dollar support at 89. If it breached that, the 88.20 level would come into play, Kinuthia said. Traders said they expected the central bank to mop up shillings from the market since liquidity had improved as the government meet some recurrent expenditures. The bank took out 4.25 billion shillings through repurchase agreements on Friday, but stayed out during Monday's session. "Activity seems to be slowing down, more so on the import side as we near the middle of the month. (But) the shilling could breach the 89.00 mark this week," said Bank of Africa in a daily report.

Source