Kenyan shilling holds steady on tighter liquidity

May 21, 2015 8:47 AM

NAIROBI (Reuters) - Kenya's shilling was barely changed on Thursday as a liquidity squeeze in the money markets started to bite but was seen trading with a weaker bias against the dollar.

A fuel attendant handles Kenyan shilling notes at a petrol station in the capital Nairobi March 15, 2011. REUTERS/Noor Khamis

At 0730 GMT, commercial banks posted the shilling at 96.85/95 per dollar, barely moved from Wednesday's closing rate of 96.80/90.

"There are relatively tight money market conditions," said a trader with a leading commercial bank.

The weighted average interest rate for banks on the overnight borrowing market shot up to 11.0101 percent on Wednesday from 10.3709 percent the previous day, indicating there was a squeeze on liquidity.

The central bank sought to mop up 4 billion shillings from the market on Thursday, reinforcing its desire to cut volatility in the currency market, by pursuing a tightening stance through its open market operations.

Traders said the shilling was however still under pressure from the dollar and it was likely to maintain its weakening tone over the longer term.

"We still have underlying current account deficit issues," said the trader with the commercial bank.

Tourism, which is one of the biggest foreign exchange earners, has slumped due to frequent attacks blamed on Islamists from neighbouring Somalia.