NAIROBI: The Kenyan shilling was steady on Tuesday but is seen firmer on slack dollar demand due to inflows from tea exports and continuing liquidity mop-ups by the central bank, traders said.
At 0811 GMT, commercial banks quoted the shilling at 86.25/45 to the dollar, compared with Monday's close of 86.40/50.
"Lack of demand (for dollars) at the moment is what is supporting the shilling. Also I think we are seeing the continuing efforts from central bank on mopping up, so these are showing some positive side," Peter Mutuku, head of trading at Bank of Africa, said.
"Predominantly it's more demand that has come down considerably, and then we are going into the auction of the tea guys, so we should see tea dollars probably filtering in from the afternoon," he said.
On the interbank market, the weighted average interbank rate dropped to 5.3051 percent on Monday from 5.3407 percent on Friday.
The Central Bank of Kenya (CBK) absorbed 4 billion shillings ($46.22 million) from the money markets on Monday using term auction deposits at a weighted average rate of 6.560 percent. It received bids worth 10.35 billion shillings, pointing to more liquidity that may to need to be sterilised.
By mopping up liquidity, the bank makes it relatively more costly to hold onto long dollar positions, which in turn helps strengthen the shilling.
"It's reacting to the CBK mop-ups. If they continue mopping up, we should see some strength," Julius Kiriinya, a trader at African Banking Corporation, said.
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