NAIROBI: The Kenyan shilling held steady at a near 13-month high on Tuesday, supported by high lending rates and reduced dollar demand, while shares fell as investors booked profits after a three-week-long rally.
Traders said the shilling could break through its 82 per dollar resistance level this week as rising interbank rates offer foreign investors a bigger return for holding the currency, squeezing liquidity in the market even tighter.
At the 1300 GMT market close, commercial banks quoted the shilling at 82.20/40 against the dollar, barely changed from 82.15/35 Monday's close.
"Current tightness might support the shilling to break below the 82 level. Importers are also out of the market because they cannot access credit at these high rates," said Robert Gatobu, a trader at Bank of Africa.
The weighted average interbank rate rose 80 basis points to 26.2 percent on Monday, above the central bank's discount window rate of 24.0 percent, as players held onto shillings with the intention of buying at upcoming sales of government debt.
The Central Bank of Kenya is selling a one-year bond worth 10 billion shillings ($121.3 million) this month, which traders expect will be well subscribed as investors look to lock into high yields before they fall further.
Government securities, yields on which rose to above 20 percent in December after the central bank raised interest rates to prop up the currency and fight high inflation, have attracted huge demand this year, pushing yields slightly lower.
Solomon Alubala, head of trading at Co-operative Bank, said the shilling was also being aided by positive market sentiment after the acting finance minister rowed back on previous comments on capping shilling gains, saying instead he preferred a stable shilling at any level.
The benchmark NSE-20 index fell 1.22 percent to close at 3,358.60 points, dragged down by profit-taking, concerns about political risk ahead of elections and a sharp fall in shares of national carrier Kenya Airways before its cash call.
The bout of profit-taking sent the index to a second consecutive daily loss, following 14 straight sessions of gains. The previous rally was mainly driven by growth in corporate earnings especially among banks.
Investors were also spooked by a spat between the Prime Minister Raila Odinga and his likely opponents in a presidential vote expected later this year or early in 2013.
Odinga sparked a bitter exchange with other presidential contenders Uhuru Kenyatta and William Ruto when he said over the weekend that the two, who are facing charges of crimes against humanity at the International Criminal Court, should be in jail.
"It is looking as if the gloves are now coming off. That obviously is something that investors would be watching," said Eric Musau, a research analyst at Standard Investment Bank.
Shares of Kenya Airways led the day's losses, falling 7.2 percent to close at 16.75 shillings, ahead of a $250 million rights issue priced at 14.00 shillings per share.
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