Shilling touches 6-week high as banks sell the greenback

The Kenyan shilling Thursday traded at a six-week high, hitting an average of below 102 units to the dollar as tight liquidity conditions continued to prevail in the money market.

The average exchange rate for the currency in the interbank market stood at 101.45 as at 4:50PM Thursday, according to data monitored by Thompson Reuters, even as the Central Bank of Kenya (CBK) reported that the currency opened the market at 101.94 units on average to the greenback.

The shilling’s liquidity remained scarce with the interbank rate elevated as the banks sought to keep their ratios in line with the prudential requirements as the year concludes.

Reuters news agency quoted traders saying that there was flat demand for the dollar as banks sold dollars to get Kenyan shilling liquidity to meet the statutory requirements.

“The Kenyan shilling extended gains against the dollar on Thursday due to tight money market liquidity as banks sold dollars to meet shilling reserve requirements amid flat dollar demand from oil importers,” Reuters reported.

The cash reserve ratio (CRR) cycle fell on December 14, after which the banks must show that they have at least 5.25 per cent of their total deposits with the CBK.

They must also show at least 20 per cent liquid assets as they close the year.

The shilling has also benefitted from healthy Christmas diaspora inflows as the corporate demand by importers remained low.