NAIROBI: The Kenyan shilling was stable in early trading on Friday, with traders expecting it to weaken into next week due to substantial end-month dollar demand from importers.
At 0850 GMT, commercial banks quoted the shilling at 89.35/45, unchanged from Thursday's close.
A downturn in the tourism industry after a spate of bomb and gun attacks along the coast and in the capital this year has hurt one of the major sources of hard currency for East Africa's biggest economy.
Tea earnings, another key source of dollars, have suffered due to a global glut of the commodity.
Traders said they expected the shilling to weaken towards 89.50 next week.
Duncan Kinuthia, head of trading at Commercial Bank of Africa, said the local currency could weaken to as low as 89.80 if the 89.50 level is breached.
"It's still a hard level to crack," Kinuthia said, referring to 89.50.
The central bank intervened by selling dollars directly into the foreign exchange market last month after the shilling weakened to 89.45/55.
A trader at another commercial bank said substantial dollar orders were expected next week from importers seeking to meet their end-month payments, adding the central bank would have to weigh its actions.
"If it's a gradual weakness, they shouldn't intervene, but if we see the shilling depreciate rapidly, they will," he said.
Some weakening of the shilling due to declining dollar earnings from tourism and exports, was natural, he said.
Traders said the central bank's action of mopping up liquidity this week had so far only slowed the shilling's decline rather than strengthening the currency.
By using repurchase agreements and term auction deposits to mop up liquidity, the central bank makes holding long dollar positions more expensive, which in turn supports the shilling.
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