NAIROBI, Dec 8 – East Africa’s shillings are likely to firm next week, continuing their bounce from record lows against the dollar over the last few months, as monetary tightening takes effect and dollar-consuming businesses wind down towards the end of the year.
KENYA
Kenya’s shilling is seen firming against the dollar next week helped by tighter liquidity as an increased bank cash reserve ratio (CRR) comes into effect, and more foreign exchange flows in from the tea and tourism sectors, and remittances.
The Central Bank of Kenya, which has tightened monetary policy aggressively in the last quarter of the year to combat rising inflation and a plunging currency, raised the CRR 50 basis points last month to 5.25 percent.
The new rate will be enforced from Dec. 15.
“We expect the shilling to gain next week as liquidity tightens further once the new cash reserve ratio is implemented,” said Christopher Makombe, a trader at Standard Chartered Bank.
At 0920 GMT, commercial banks quoted the shilling at 89.40/60 per dollar, firmer than the last Thursday’s close of 90.00/20.
Charts showed dollar support at 89 shillings. If the shilling breaches that, 88 would be the next target, Makombe said.
Traders said they were seeing interest for the dollar below 89.50, but they expected inflows from tea and tourism, top foreign exchange earners, as well as elevated seasonal remittances to support the shilling.
“Underlying demand under the 89.50 level has caused the local unit to lose steam and pare some of the gains made recently,” Bank of Africa said in a daily report.
“However, as the middle of the month draws near, we should see the local unit strengthen supported by dollar inflows from the farm, tourism … plus remittances from the diaspora.”
TANZANIA
An acute liquidity crunch is likely to bolster the Tanzanian shilling as banks sell dollars, while slackening demand for greenbacks ahead of the holiday season should also support the local currency.
Commercial banks in Dar es Salaam quoted the shilling at 1,615/1,625 against the dollar, stronger than last Thursday’s close of 1,705/1,710 and more than 10 percent stronger than a record low of 1,850 plumbed on Oct. 28.
“The shilling has strengthened a lot,” said Patrick Kapella, chief dealer at First National Bank Tanzania. “The key reason is the tight liquidity. Everyone is looking to off-load dollars, while there is very little demand as businesses slow down.”
Source: Reuters Africa newsletter
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