Kenya's shilling sank to a record traded low of 105 per dollar on Tuesday as banks moved to close bets on a recovery after last week's 4-point rise in interest rates.
The shilling, down 29 percent this year, saw some respite after the Central Bank of Kenya raised its key lending rate by an unprecedented 400 basis points to 11 percent in a bid to stabilise the battered currency and put a lid on consumer prices.
But it returned to losses on Monday and dealers said banks had been forced to back off short positions in the dollar.
“The shilling is moving mostly on interbank trades. Guys are covering short dollar positions and there is a bit of panic in the market,” said a senior trader at one commercial bank.
“When we are setting new lows every other day it's difficult to say where the shilling will trade by the end of the day. We could hit new lows,” he said.
The shilling bounced back a touch soon after to trade at 104.70.
Analysts had said the rate rise would be a big step towards restoring confidence in a regulator markets had feared lacked the mettle to tackle inflation and defend the shilling, but also warned any improvement in the currency would be gradual.
Strong underlying demand for dollars from importers as well as debt problems in the euro zone are clouding the outlook, market players said.
With a lack of clarity in the market, traders said squared positions were the focus right now, with any sale of dollars to a client being covered through the interbank market, amid high volatility.
“It's quite crazy out here. There is nothing to support the shilling at the moment,” said a trader with another commercial
