Kenya shilling seen under pressure after rate cut

The Kenyan shilling ended steady versus the dollar yesterday after the central bank intervened to sell dollars and mop up liquidity, while shares rallied for a ninth straight session to a new 23-month high.

The Kenyan shilling ended steady versus the dollar yesterday after the central bank intervened to sell dollars and mop up liquidity, while shares rallied for a ninth straight session to a new 23-month high.

The shilling ended unchanged at 86.65/75 to the dollar, after the central bank sold dollars and also sucked up excess liquidity to support the local currency.

“The central bank was in the market. That helped the shilling hold its ground. There’s some underlying dollar demand from importers with no matching inflows,” said a trader at one commercial bank.

“They only sold about $1m late in the session.”

Traders said they expected the regulator to continue intervening in the market to support the shilling after it cut its key lending rate by 150 basis points to 9.5 percent last Thursday.

They expected the local currency to remain under pressure in coming sessions as commercial banks respond to the base rate cut by cutting their loan rates.

Typically, a cut in rates puts pressure on the shilling as businesses find it cheaper to finance their imports.

“If banks succumb to the central bank's pressure to cut interest rates, the shilling will remain bearish,” said Robert Gatobu, a trader at Bank of Africa.

The currency has fallen 0.6 percent against the dollar so far this year.

Some commercial banks are already moving towards cutting loan rates. Ecobank Kenya is cutting its base lending rate by 200 basis points to 18.5 percent, effective from mid-February, it said in a newspaper advertisement yesterday.

 

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