NAIROBI: Kenya's shilling weakened on Wednesday, snapping five days of gains as importers took advantage of the shilling's stronger value to buy dollars, but traders said both the central bank and tight liquidity could support the currency.
At 0710 GMT, commercial banks quoted the shilling at 99.70/90 against the dollar, weaker than Tuesday's close of 99.20/40.
"We saw some dollar demand late yesterday from importers and that has spilled over. We don't expect much movement today ahead of the holiday tomorrow," said a trader at a commercial bank.
Financial markets will be closed on Thursday for a public holiday.
Bank of Africa said the market was seeing significant dollar demand from the petroleum sector.
"The shilling remains volatile as market players remain wary of central bank intervention. With this in mind we continue to expect the shilling to trade within a wide range of 99.00-101.00," Bank of Africa said in a market report.
"With tomorrow being a national holiday we expect most banks to square out positions. However end-month demand still remains a threat to the shilling's recent gains," it said.
The shilling had gained for five straight days -- firming 7.75 percent from a record low of 107 hit on Oct. 11 -- after policymakers ordered commercial banks to cut their foreign exchange exposure to a maximum of 10 percent of their core capital, from 20 percent.
The regulator has also been in the market mopping up shilling liquidity through repurchase agreements, while selling unspecified amount of dollars to commercial banks, with the twin aim of boosting dollar supply and further draining shillings from the market.
In the money markets, the weighted average interbank rate rose to 17.397 percent on Tuesday, from 16.6822 percent previously.
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