Shilling’s slide versus dollar far from over

The Kenya shilling weakened further Wednesday, touching a three-year low against the US dollar as the undersupply of the greenback in the money market continued to bite.

By 3pm, commercial banks quoted the local unit at 89.25, even as the market regulator sustained its excess liquidity mop-up in bid to breathe life into the ailing currency.

PERCENTAGE OF DECLINE

The last time the shilling declined to that level was in mid-December 2011, when it traded at 89.10 against the dollar.

Yesterday’s figures display a 0.22 percentage decline from the previous levels, with market traders predicting further weakening.

The Central Bank of Kenya (CBK) bought Sh3.4 billion on Tuesday, as it desperately sought to remove excess money from the market.

This was in line with its Sh10 billion mop-up goal of excess liquidity in term auction deposits (TADs) and repurchase agreements (repos).

MOP UP EXCESS LIQUIDITY

This is the ninth time in a row the regulator has sought to reduce the excess liquidity.

The exercise is meant to improve the dollar inflows into the Kenyan market.

The market also expects the CBK to sell dollars to support the shilling.

If the dollar crunch persists, the local currency, which has lost about 2.6 per cent of its value, is expected to further weaken.

Although the mop-up is a welcome option, there are fears that the action will exhaust the bank’s foreign exchange reserves.

The CBK sold dollars in late August after the shilling traded at 88.80/90, reversing the diminishing trend.