NAIROBI: The Kenyan shilling strengthened on Wednesday on tightening liquidity in the money markets. Stocks edged lower.
At the 1300 GMT close, commercial banks quoted the shilling at 91.55/65 to the dollar, compared with Tuesday's close of 91.60/70.
Traders said the shilling was receiving support from a shortage of the local currency after investors bought Treasury bills and bonds worth a total 26.6 billion shillings ($290.9 million) last week.
Tight shilling liquidity makes it more expensive to hold long dollar positions, which partly supports the shilling.
Due to the liquidity squeeze, the weighted average interbank lending rate rose to 8.0814 percent on Tuesday from 7.7290 percent on Monday.
"The markets are very tight. We have seen overnight rates jump up. That's what is keeping the shilling well supported," a senior trader at one commercial bank said.
Sheikh Mehran, head of trading at I&M Bank, said the shilling firmed to 90.48/58 on tight liquidity but big companies from all sectors "came to take advantage of the low rates and it did not last at low levels for long. It was pared immediately."
Mehran added that tightening liquidity was a temporary trend and would likely ease when most Kenyans receive their salaries at the end of the month on Friday.
The shilling - which has lost 1 percent against the dollar so far this year - is forecast to trade in the 91.40 to 92.00 range in the days ahead, traders said.
On the equity market, the benchmark NSE 20 index inched down by 0.1 percent to close at 5,207.04 points.
In the secondary debt market, bonds worth 2.7 billion shillings ($29.46 million) were traded, up from 1.3 billion shillings on Tuesday.
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