NAIROBI, Aug 18 – Strong demand for the dollar in Nigeria and Uganda is expected to weaken local currencies while Kenya’s shilling looks set to strengthen due to a liquidity squeeze.
KENYA
Kenya’s shilling is seen firming against the dollar in the days ahead, aided by a liquidity crunch that has made it more expensive to fund long dollar positions.
The central bank tightened its rules for commercial bank borrowing through its window of last resort to punish those relying on funding from the window, sending the overnight discount rate to 17.89 percent from 6.25 percent in four days.
At 1045 GMT, commercial banks posted the shilling at 92.70/90 against the dollar, stronger than last Thursday’s close of 93.40/60.
“The (discount window) rate will continue going up and squeeze liquidity in the market. People are waiting for a stronger shilling to come and buy dollars,” said Ignatius Chicha, head of markets at Citibank Kenya.
Traders said they expected rising yields in government securities to support the shilling as foreign investors come in to take advantage of the rising bond yields, but rising inflation – at 15.53 in July – could curb the gains.
“Rising yields have helped stem further losses in the local unit but have failed to rally the shilling as market anticipation of further rise in inflation continues holding offshore investors,” said Bank of Africa in a daily report to its clients.
Source: Reuters Africa newsletter
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