The shilling has receded back to the 103 exchange level to the dollar after shedding 0.5 per cent last week under pressure from oil sector speculators and other importers.
Commercial banks quoted the currency at 102.95/103.05 on Friday, while the Central Bank of Kenya’s mean indicative rate stood at 103.03, from 102.89 on Thursday.
The import demand was mainly from the energy sector, while there was a fall in foreign investor flows, especially from those normally buying government securities.
“The shilling was under pressure from the dollar from Wednesday due to oil importer demand and dwindling inflows from portfolio investors,” said Kingdom Securities in a market note.
The reverse of these supply and demand dynamics in the first half of the month saw the shilling rally to trade below the 103 level to the dollar, touching a two-month high of 102.60 on March 9.
A dealer at a commercial bank said the oil importers may be moving to lock in lower prices in the international market, where the price of crude has fallen by eight per cent from $56.52 a barrel at the beginning of this month to $51.90 on Friday.
“Some may feel that the fall is likely to reverse should major oil producers keep to their production cut pledges, and are therefore locking in the lower prices,” said the dealer. CBK’s monetary policy committee (MPC) meets in a week’s time and is expected to address the currency should the new round of depreciation persist this week.
The MPC is likely to have a full plate before it, given that inflation has also risen since it last sat in January, and concerns remain over the slow rate of private sector credit growth.
Should there be prolonged volatility with a weakening bias, CBK has the option of either calling on a $7.03 billion (over Sh700 billion) foreign reserve chest and sell dollars to the market, or cut shilling liquidity in the market through open market operations.
CBK’s monetary policy committee meets in a week’s time and is expected to address the currency issue. Photo courtesy