East Africa's shillings are likely to firm next week, continuing their bounce from record lows against the dollar over the last few months, as monetary tightening takes effect and dollar-consuming businesses wind down towards the end of the year.
KENYA Kenya's shilling is seen firming against the dollar next week helped by tighter liquidity as an increased bank cash reserve ratio (CRR) comes into effect, and more foreign exchange flows in from the tea and tourism sectors, and remittances.
The Central Bank of Kenya, which has tightened monetary policy aggressively in the last quarter of the year to combat rising inflation and a plunging currency, raised the CRR 50 basis points last month to 5.25 percent. The new rate will be enforced from December 15. The commercial banks quoted the shilling at 89.40/60 per dollar, firmer than the last Thursday's close of 90.00/20. Traders said they were seeing interest for the dollar below 89.50, but they expected inflows from tea and tourism, top foreign exchange earners, as well as elevated seasonal remittances to support the shilling.
TANZANIA An acute liquidity crunch is likely to bolster the Tanzanian shilling as banks sell dollars, while slackening demand for greenbacks ahead of the holiday season should also support the local currency. Commercial banks in Dar es Salaam quoted the shilling at 1,615/1,625 against the dollar, stronger than last Thursday's close of 1,705/1,710 and more than 10 percent stronger than a record low of 1,850 plumbed on October 28. Traders said they expected the shilling to trade in the 1,600-1,610 range in the days ahead.
UGANDA Uganda's shilling is seen holding firm against the dollar, helped by money sent home from Ugandans living abroad and dwindling foreign exchange demand in the run up to Christmas. Commercial banks in Kampala quoted the unit at 2,461/2,471, stronger than 2,535/2,545 a week ago. "The key driving force for the market over the next several days will be flows from Ugandans abroad against slow demand from importing businesses," said Faisal Bukenya, head of market making at Barclays Bank.
"I see the shilling maintaining pressure on the dollar since the market is likely to be heavy on supplies," he added.
NIGERIA Nigeria's naira is expected to weaken further against the dollar next week as robust demand for the greenback from importers stocking up for Christmas and firms excluded from the official window overstretch supply. The naira was trading at 162.45 to the dollar on the interbank market, weaker than its 161.60 close last week Thursday. "There is no dollar liquidity in the market while a lot of companies whose obligations have fallen due are putting pressure on the available dollar stock," one dealer said.
GHANA The cedi is expected to hold firm due to an easing of corporate demand for dollars and regular central bank intervention, traders said. Christopher Nettey of Standard Bank quoted the cedi at 1.6395/20 to the dollar, in line with its levels a week ago. "There is currently not a rush for dollars. I think local corporates are comfortable with the level of central bank support at the moment," Nettey said.
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