The Kenyan shilling has been under pressure from the globally strengthening US Dollar, a slide in valuable tourism revenue and a widening current account deficit. The Kenyan shilling has been on a downward trend in the recent months but as at the 5th of August according to Reuters, the shilling started kicking back.
The Kenyan shilling traded steady on Wednesday, 5th August, aided by a liquidity squeeze that has led to rising overnight lending rates and expectations of a rate hike, while trading stocks fell for the fifth-straight session. At market close, commercial banks in Kenya quoted the shilling at 100.75-100.85 to the Dollar from Tuesday’s 101.10-101.20.
However, trading on the Kenyan currency had closed before the Central Bank of Kenya announced that it had kept its benchmark lending rate unchanged at 11.50 percent. Business analysts are of the opinion that the expectations of a rate hike supported the shilling and aided in its improvement.
It is believed that tight liquidity in the money pushed the interbank rates up and to some extent made it costly to hold the Dollar which ultimately worked in the Kenyan shilling’s favor. Due to tight liquidity on 4th, the weighted average interbank lending rate jumped to 20.44 percent from 19.82 in just a day’s window.