NAIROBI – Rising importer demand is likely to weigh on East African currencies against the dollar next week, foreign exchange dealers predict.
Traders expected the Kenyan shilling to lose ground as increased money market liquidity fuels demand for dollars, although the central bank is likely to sell dollars to prop up the local currency.
Yesterday, commercial banks quoted the shilling at 88.60/65 to the dollar, weaker than last Thursday’s close of 88.35/45.
“More liquidity in the market points to a weaker shilling,” said John Njenga, a Commercial Bank of Africa trader.
After a brief liquidity crunch, the average overnight interbank lending rate fell to 8.2033 per cent on Wednesday from 13.8391 per cent on August 25.
Speculation in the market was that the Central Bank of Kenya would not allow the currency to weaken below Ksh89/dollar, Njenga said.
The central bank pumped an unspecified amount of dollars into the market last month after the shilling fell to 88.80/90, its weakest since December 2011.
An expected surge in importer demand before the December shopping season could put pressure on the Ugandan shilling.
Commercial banks quoted the shilling at 2,603/2,613 yesterday morning, stronger than last Thursday’s close of 2,615/2,625.
“We’re in that period when we typically see a rise in dollar demand from importers because December is nearing,” said Ahmed Kalule, a trader at Bank of Africa.
But the currency, which has fallen 3.2 per cent against the dollar so far this year, may get some support from next week’s Treasury auction for Ugshs180 billion worth of two-and 15-year bonds, Kalule added.
The Tanzanian shilling is expected to weaken against the dollar in coming days, undermined by growing demand from the energy sector. Commercial banks in East Africa’s second-biggest economy quoted the shilling at 1,655/1,665 to the dollar on Thursday, stronger than 1,662/1,672 a week ago.
“We are seeing oil-marketing companies coming back into the market with demand for dollars.
“The outlook is that the shilling will likely depreciate going forward,” said Sameer Remtulla, a dealer at Commercial Bank of Africa.