The Kenyan Shilling steadied on Monday, and traders said they expected the central bank’s mopping up of banking sector liquidity to support the currency in the absence of demand for dollars from importers.
At 0719 GMT, commercial banks quoted the shilling at 84.00/20 per dollar, the same as Friday’s close.
The Central Bank of Kenya (CBK) has stepped up its open market operations to soak up persistently high levels of free cash in the market, adding longer-tenure 28-day repurchase agreements to its range of tools.
The bank also slashed its main interest rate last week by 150 basis points to 16.5 percent, its first reduction in the official premium for holding shillings since January of last year.
“We expect to trade steady as CBK continues to mop up liquidity to support the shilling,” said a trader at one commercial bank.
“The rate cut was already priced in, that’s why we’ve not seen the currency fall afterwards.”
Cutting rates, the bank also warned there were still risks to the shilling due to the large current account deficit and a softer export demand that dragged the shilling through a series of record lows last year.
“The large trade deficit should remain a key concern for policy makers. The cut … will not assist with restoring this imbalance,” said Citibank in a note to its clients.
“The improved CBK FX reserves and the intention to combat inflation should help keep the unit supported.”
Besides the liquidity it is taking from the market, the central bank has received a boost to its hard currency reserves, when the government received the tranche of $360 million from international lenders in mid June.