The Kenyan shilling weakened against the dollar on Monday as the greenback firmed on global markets on the back of renewed euro zone worries, traders said.
Market players said expectations that the dollar would gain further against the European currency prompted some local commercial banks to buy dollars in order to square off their short positions, unnerved by a rise in global risk aversion.
Renewed concerns over the euro debt crisis, as Spanish government bond yields rose above 6 percent for the first time this year, eroded investor appetite for riskier assets, such as the shilling, pushing them lower against the greenback.
“We've seen interbank demand for the dollar as people squared positions because of the weaker outlook on the euro,” Dickson Magecha, a trader at Standard Chartered Bank, said.
At 09:24 SA time, commercial banks quoted the shilling at 83.20/30 per dollar, slightly weaker than Friday's close of 83.10/20.
Traders said the shilling could, however, see support this week if the central bank continued mopping up liquidity in a bid to stabilise the interbank. Corporate VAT payments due later this week rate might also lend support.
Those tax payments, though, may dampen banks' appetite to take part in the repo market.
“The central bank might continue mopping up liquidity, but the banks may not be keen on bidding because of tax payments by corporates this week,” a trader at one commercial bank said.
The Central Bank of Kenya soaked up a total of 31.1 billion shillings ($373.6 million) in repurchase agreements over the last five trading sessions, helping push the interbank rate up to 13.8 percent on Friday from a low of 10.3 percent on April 5. - Reuters