NAIROBI: The Kenyan shilling firmed slightly against the dollar as banks cut back on their long dollar positions after the central bank tightened liquidity further, while stocks edged up for the fourth straight session.
At 1300 GMT, commercial banks quoted the shilling at 85.00/20 per dollar, stronger than Wednesday's close of 85.20/30.
"We've closed a tad firmer mainly on interbank guys cutting back on their long positions," said a trader at a bank.
"We expect the shilling to touch 84.80 by the end of this week if they (central bank) continue tightening."
The central bank, which has been mopping up liquidity since April 5 and introduced longer tenure repurchase agreements last week, soaked up 730 million shillings ($8.55 million) in 7-, 14- and 28-day repos on Wednesday.
The shilling, which has been fairly steady this year helped by a tight monetary stance adopted by the central bank late last year when it hit a series of record lows.
In the debt market, the weighted average yield on the benchmark 91-day Treasury bills jumped to 10.537 percent at an undersubscribed sale on Thursday, from 9.801 percent previously.
Fixed-income traders said investors were reacting to the central bank's introduction of longer tenor Term Auction Deposits earlier this month to mop up liquidity.
The session ended while Finance Minister Robinson Githae was presenting his budget for the 2012/13 (July-June) fiscal year to parliament.
Traders said most of Githae's proposals were already factored into the shilling and might not have a major impact on the currency when the market opens on Friday.
In stocks, the benchmark NSE-20 Share Index rose for the fourth straight session, up 0.4 percent to 3,685.36 points, lifted by shares in Equity Bank and retailer Uchumi.
Shares in Equity, the Kenyan bank with the largest customer base, rallied for a third straight day, by 2.4 percent to 21.25 shillings, while Uchumi, the biggest gainer on the bourse so far this year, rose 3 percent to 17.15 shillings.
"The market was upbeat today backed by increased foreign interest. Foreigners consolidated their positions ... with keen interest on Equity Bank," said Sterling Investment Bank in a daily note to its clients.
Government and corporate bonds worth 1.7 billion shillings were traded, down from 2.1 billion on Wednesday. The 12-year infrastructure bond remained the main focus, trading at a yield of 14 percent.
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