Photos/FILE Forex traders gave further indications that the shilling is likely to weaken above the 86.00 mark, given the sustained dollar demand against unmatched supply levels.



Sustained demand for the dollar from importers continued to weaken the Kenya shilling to hit a five-month low.
By close of trading yesterday, it traded at 85.90/86.00 to the dollar, a level it last traded on January 24, against Monday’s performance of 85.65/85.
Forex analysts said that a bulk of the demand emanated from the energy sector seeking to meet its end of the month import obligations.
“The shilling is still under pressure from importer demand across the board, but Central Bank is trying to support it.
They came in for Sh8 billion in repurchase agreements and then in the forex market,” Kenya Commercial Bank forex analyst Jeremiah Kendagor told the Nation on phone.

The fall is despite the bank regulator’s effort to intervene in the market by pumping in an unspecified amount of dollars to support the shilling.
Unmatched supply levels
Forex traders gave further indications that the shilling is likely to weaken above the 86.00 mark, given the sustained dollar demand against unmatched supply levels.
“If CBK does not intervene through the forex market and in repurchase agreements, the shilling could further weaken to Sh86.30 levels against the dollar in coming days,” African Banking Corporation senior dealer, Julius Kiriinya, said.
Market analysts say weakening of the shilling is a short-term trend given CBK’s bid to mop-up excess liquidity and inject dollars in the forex market, and might not affect the decision of the Monetary Policy Committee meeting next week, on Tuesday.
Inflation has been falling consistently from 18.93 per cent in December last year to 13 per cent in April. Interest rates especially on T-bills have also dropped from above 20 per cent in January this year to below 10 per cent.
“The CBR decision will not be determined by the shilling in isolation, but by other factors like declining inflation and falling short-term interest rates in the T-bills market.
“I think the MPC will adjust the CBR rate downwards,” said Eric Musau, research analyst at Standard Investment Bank.
Last year, CBK was forced to increase its benchmark rate, CBR, to 18 per cent to help stem the shilling slide and contain inflation.