Shilling weakens due to energy sector dollar demand

Kenya’s shilling weakened on Monday due to demand for dollars from the energy sector, traders said.

At 0705 GMT, commercial banks quoted the shilling at 101.4555 to the dollar, compared with Friday’s close of 101.1525.

“This (weakening) I would attribute to end of month demand. (It is from) energy sector as usual, which comes in at the end of the month,” a senior trader at one Nairobi-based commercial bank said.

The trader said the shilling was weakening despite rising interbank lending rates – a sign of tight liquidity which typically helps the shilling strengthen by making it expensive to hold dollars.

The weighted average interbank lending rate rose to 16.9627 per cent on Friday from 16.3769 per cent a day earlier. The lending rate hit a high of 17.50 per cent.

“My take is if we are at 17 per cent and the shilling hasn’t strengthened, it’s being driven by real (dollar) demand,” the senior trader said.

A second trader at another commercial bank said the shilling was expected to remain under pressure in the next few days to due increased importer demand and a dearth of dollar inflows.

For most of this year the shilling – which has lost 10.8 per cent so far in 2015 – has been under pressure a globally stronger dollar, slowing export earnings especially from tourism, and a widening current account deficit.

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