NAIROBI, Aug 12 (Reuters) - The Kenyan Shilling firmed against the dollar on Friday, lifted by banks cutting long dollar positions amid a shilling liquidity squeeze after the central bank stopped shoring up liquidity through reverse repurchase agreements this week. Traders said the local currency could strengthen further in the days ahead when value-added taxes fall due next week and interest rates rise in step with the lack of liquidity. At 0652 GMT, leading commercial banks quoted the shilling at 93.10/30 against the dollar, stronger than Thursday's close of 93.45/65. "We are expecting the shilling to gain further, but I think the main impact will come next week if the central bank fails to come into the reverse repo market," said Bhavin Chandaria, a trader at Imperial Bank. "A lot of guys may be sitting on long (dollar) positions and will be forced to sell to fund their shilling positions. We've not seen much demand because clients are expecting a stronger shilling." The yields on all three Treasury bills sold on Thursday rose from the previous sale and traders said they would keep rising in the foreseeable future. In the interbank borrowing market, the weighted average rate for overnight lending rose to 7.2597 percent, from 6.7429 percent on Thursday. "Until we get a clearer picture of how the market is going to fund itself there is going to be a bit of uncertainty and its very likely we could see higher overnight rates," said Dickson Magecha, a senior trader at Standard Chartered Bank.

Source