NAIROBI – The Kenyan shilling fell for the second day in a row on Tuesday, weighed by energy importers buying dollars, but dollar inflows from the country’s weekly tea auction were expected to offer support to the local currency.
At 0645 GMT, commercial banks posted the shilling at 84.90/85.10 to the dollar, 0.4 percent weaker than Monday’s close of 84.65/85.
“We have seen increased demand coming from the energy and oil sector and that has been the reason that has pushed it (shilling) higher,” said Dickson Magecha, a trader at Standard Chartered.
Traders said there was room for the shilling to weaken further this week, pushed down by high dollar demand from importers looking to meet their end-month payment obligations.
“I would imagine if the market is volatile they (central bank) would come and sell (dollars).”
The central bank has regularly intervened in the foreign exchange market this year, frequently mopping up excess liquidity via repurchase agreements (repos) and occasionally selling dollars directly to commercial banks to try to take shillings out of the system.
Governor Njuguna Ndung’u said in the central bank’s September newsletter that it will focus on lowering inflation and maintaining exchange rate stability to spur growth in east Africa’s biggest economy. ꤓ “CBK’s objective is to achieve and maintain stability in the domestic prices, its interventions in the foreign exchange market are targeted at reducing volatility in the adjustment patch, and not to support a particular level or direction of the exchange rate,” Ndung’u said.
On Monday, the central bank absorbed 10 billion shillings having received bids worth 12.35 billion shillings for the 10 billion shillings it had offered.
Chris Muiga, a senior trader at Kenya Commercial Bank said banks were covering short dollar positions arising from Monday’s heavy demand for greenbacks from energy importers, which had undermined the shilling.
Muiga said tea sales from Tuesday’s auction would help cushion the shilling’s drop, but were not likely to help the local currency strengthen against the dollar.
Kenya is the world’s biggest exporters of black tea, and the crop is one of its largest foreign exchange earners, raking in $1.27 billion in 2011.
Traders expect the shilling to trade at a range of 84-70-85.20 during Tuesday’s session.