NAIROBI: The Kenyan shilling firmed against the dollar on Monday, lifted by the central bank's tight squeeze on availability of the local currency, which has seen market interest rates edge higher.
At 0718 GMT, commercial banks quoted the shilling at 87.35/55 to the dollar, stronger than Friday's close of 87.45/65.
"The high cost of inter-bank funding is discouraging holding long dollar positions," said John Muli, a trader at African Banking Corporation.
"There are also bond payments due today and that will tighten liquidity further."
The central bank has been actively soaking up shillings from the banking sector via repurchase agreements since last year, helping the weighted average interbank rate edge up for the fifth straight session to 10.12 percent on Friday. Strong demand at a sale last week saw yields on 15-year and 2-year bonds rise and the bank accept over 25 billion shillings ($285.4 million) for the 15 billion shilling worth of debt it had offered. Rates on Treasury bills also rose.
Bank of Africa said in a daily note that demand for dollars from importers had also dwindled ahead of next week's national election as investors trade cautiously.
The vote is the first since 2007's contested poll triggered countrywide ethnic violence. The ensuing unrest hammered the shilling before a political deal spurred a rally.
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