Shilling gains despite growing dollar demand

The shilling has started the year on the right foot after gaining 0.57 per cent to 1713/47, but pressure from foreign currencies has continued to build up.

The shilling opened the year at 1,723/25 but gained some ground yesterday to close at 1,713/47, appreciating by 0.57 per cent in the first six days of the year.

However, according to forex analysts, the shilling’s future is not rosy following growing demand from both retailers and corporations as businesses resume.

The National Microfinance Bank (NMB) said on its e-Market report that on Tuesday the shilling edged low against US dollar on growing demand from importers.

“The shilling edged low against the dollar today (Tuesday) on growing demand from both retailers and corporations as businesses resume,” NMB said.

The pro-poor bank said on Tuesday the pair traded within 1695/1759 range and “a similar trend is expected if same conditions hold”.

Another bank, Standard Chartered, said on its daily report yesterday that the local unit slightly lost ground against the dollar on Tuesday as demand for foreign currency continued to pressurise the shilling.

“Dollar demand is anticipated to persist in the market for a while thus the shilling should be expected to trade at these levels for as long as demand exceeds inflows,” StanChart said.

On other hand the shilling continue to hold ground against other major currencies, pound sterling, Euro and Kenya shilling. The shilling appreciated by 2.9 per cent against pound sterling to close the first six days of this year at 2,608/15.

On the euro, the shilling closed the six day by appreciating 0.56 per cent to 2,040/- while gaining by 0.74 per cent 18/85.

The shilling massive gain on pound sterling follows the currency to nosedive to a 17-month trough against the dollar on Tuesday after data showed growth in Britain’s dominant services sector slowed last month to its weakest rate since May 2013.

Meanwhile, Kenya’s shilling weakened slightly yesterday to lows last seen more than three years ago and traders said the slide was prompting more demand for dollars from businesses wary of a further dip.

“The significant thing to note here is we have broken the 91 level (to the dollar),” said Nahashon Mungai, a trader at Kenya Commercial Bank. “The sentiment has already shifted for a weaker shilling.”

By 0741 GMT, the shilling was trading at 91.00/91.10, edging down from Tuesday’s close of 90.90/91.00. The last time the shilling traded at these levels was in late 2011.

The stab at the 91-level was prompting some extra demand from companies and other investors concerned that the currency would slide further, traders said.

Any dollar sales by the central bank might slow but not halt the slide, they said. “Anybody who is short (of dollars) is covering on the interbank market,” said one dealer who asked not to be named. Another said the 91.50 level was now in sight.

The central bank has on occasion intervened with dollar sales in recent weeks but that has not stopped the currency’s depreciation for long.

The shilling weakened steadily last year in part because of a downturn in tourism following a series of Islamist militant attacks. Tourists are a major source of dollars and other hard currencies for the east African nation.
Source: Daily News, reported from Dar es Salaam, Tanzania
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