High liquidity, attacks weigh on Kenya's shilling

President Kenyatta

Kenya's shilling traded flat on Friday, but traders said a large pool of excess liquidity and militant attacks that were unnerving the market would keep the local currency on a weakening trend.
At the close of trade, commercial banks quoted the shilling at 87.10/20 to the dollar, the same as Thursday.
The central bank has frequently mopped up excess liquidity this year to shore up the shilling. Market players said now that the 87 level had been breached, it risked falling further, one trader said.
"It's still poised to slide further. There is a lot of (dollar) demand. No one thought it would get here, so all the
orders, backlogs are being cleared out," Julius Kiriinya, a trader at African Banking Corporation, said.
The central bank said on Friday it was staying out of the money markets, just as it did on Thursday.
"If they don't continue participating in the repo market, that might put the shilling under pressure," said Robert Gatobu, a trader at Bank of Africa.
Draining shilling liquidity from the money market typically sends the overnight lending rate higher, making it more expensive for banks to hold onto long dollar positions.
Bomb blasts in Nairobi and Mombasa last weekend killed seven people and had rattled market confidence, market participants said.
No one has claimed responsibility, but officials suspect militants linked or sympathetic to the Somali Islamist group al Shabaab, whose gunmen killed 67 people in a September attack on an upscale Nairobi shopping mall. 

Those attacks and others have battered the tourism sector, a key hard currency earner for east Africa's biggest economy.
Traders said they forecast the shilling, which has lost 0.6 percent against the dollar so far this year, would trade in the 86.60 to 87.50 range against the dollar in coming days.
Technical analysis of the 14-day and 50-day weighted moving averages show the shilling is expected to keep on a weakening trend in the near term.
On the Nairobi Securities Exchange, the main NSE-20 Share Index was barely changed, up 1.70 points to close at 4,963.76 points.
On the secondary market, government bonds valued at 325.1 million shillings were traded, compared with 1.95 billion shillings on Thursday.