22 November 2012

Kenya: Shilling Rises Modestly Versus Dollar On Tea Inflows

THE shilling rose slightly against the dollar yesterday, supported by tea exporters selling dollars, but traders said greater dollar demand ahead of the Christmas holidays was likely to put pressure on the local currency.

Commercial banks quoted the shilling at 85.65/75 against the greenback, a little firmer than Tuesday's close of 84.70/80. "We've seen some inflows from the tea sector which are supporting the shilling," said John Muli, a trader at African Banking Corporation.

Tea, the leading foreign exchange earner in east Africa's biggest economy, is auctioned each Tuesday at the port city of Mombasa. However, traders said technical charts showed the shilling was set to weaken in the short-term, with its support level seen at 86.00, as the central bank actively mopped up supplies of the currency in the banking sector.

The central bank has regularly soaked up excess liquidity from the market this year using repurchase agreements to stabilise the currency, which is down 0.6 percent year-to-date.

"We still expect the shilling to be under pressure from importers as they (importers) buy stock before the start of the festive seasons," said Bank of Africa in a daily report. "However, we expect the central bank to be aware of this upcoming demand and support the shilling with all their available tools.

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