UPDATE 1-Kenyan shilling weakens against dollar, shares rise

Tue Aug 19, 2014 11:39am EDT

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(Adds shares and analyst, investment banker quotes)

NAIROBI Aug 19 (Reuters) - The Kenyan shilling weakened on Tuesday, hurt by dollar demand from the banking, oil and telecoms sectors, while shares rose.

At the close of trade, commercial banks quoted the shilling at 88.35/88.45 to the dollar, down from Monday's close of 88.20/88.30.

Traders said banks were buying the dollar to cover their short-dollar positions.

"The shilling has been weakening rapidly at a time when there is tight liquidity in the market," said Nahashon Mungai, a trader at Kenya Commercial Bank.

"If we break the 88.50 level to the dollar, the next level would be 89. There is a bias for weakening, unless the central bank intervenes," he said.

The shilling, down about 2.3 percent against the dollar this year, has been weakening over the past few weeks.

Some traders said the government had delayed the release of funds to departments and local authorities, causing a tightening of the money market.

Traders also said dollar inflows had been scant. Foreign earnings from Kenya's weekly tea auction have fallen due to over-production which has kept tea prices subdued this year.

Tourism earnings have also fallen to a trickle, largely after some Western nations warned their citizens against travelling to parts of Kenya following attacks by Islamist militants.

Traders are now looking to see whether the central bank will intervene to prop up the local currency.

"The last time we traded at 82.25/35 levels, the central bank came in and intervened. So the question is, will they intervene, considering the slow pace of depreciation?" said one trader at a commercial bank in Nairobi.

He said oil and telecoms companies were adjusting to a weaker shilling and coming in to buy dollars instead of waiting to see if the local currency would firm.

The weighted average lending rate on the interbank market rose to 12.1919 percent on Monday from about 7.5 percent in mid-July. Traders forecast the shilling was likely to reach 88.50 once the liquidity crunch eased.

On the stock exchange, shares recovered to push the benchmark NSE-20 share index 0.6 percent or 29.57 points higher, to 5,070.13 points.

British American Tobacco Kenya hauled the market up, rising 9 percent to 799 shillings a share.

"It was a fund manager disposing their stock, although it is still not clear why," said Agnes Achieng, research analyst at Sterling Investment Bank.

The firm, a unit of London-listed British American Tobacco , last month reported a 14 percent jump in first-half pretax profit, thanks to higher revenue from contracts to manufacture cigarettes for other companies.

An investment banker who declined to be named said the BAT shares could have been taken up by a long-term investor.

"BAT is one of the highest-dividend payout stocks, it's a good investment for the likes of pension funds," he said.

In the debt market, bonds worth 2.9 billion shillings ($32.84 million) were traded, down from 4.8 billion shillings on Monday.

...........................Shilling spot rates .....................Shilling forward rates .......................Cross rates ..................................Local contributors .......................Central Bank of Kenya Index .....................Kenyan Bonds contributor pages ...............Treasury bill yields ..................Central bank open market operations .........................Horizontal repo transactions ,................Daily interbank lending rate .............................Kenya Bond pricing ..................Real time Africa economic data <ECI & AFR> ...........................African economic news .................................NSE-20 Share Index .................................NSE All Share Index ...........................FT NSE Kenya 15 Index .......................... FT NSE Kenya 25 Index SPEED GUIDES:

(1 US dollar = 88.3000 Kenyan shilling) (Reporting by James Macharia and Drazen Jorgic; Editing by Pravin Char)

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