Nairobi - Kenya's shilling recovered some of its losses on Tuesday after the central bank sold an undisclosed amount of dollars to the interbank market when the local currency fell to new three-year lows.
At 08h10 GMT, commercial banks quoted the shilling at 96.50/60 to the dollar, gaining slightly from its trading levels of 96.80/97.00 before the bank sold the dollars.
The shilling, which is still trading at lows last hit in November 2011, closed at 96.20/30 on Monday.
“Central bank were in and they sold some dollars,” a senior trader at a second commercial bank said.
A trader from another commercial bank also confirmed the central bank dollar sale.
The central bank has in the past said it only sold dollars to smooth out any volatility in the markets and not to target any particular level.
The bank also said it planned to mop up 15 billion shillings ($156 million) in excess liquidity from the money markets using repurchase agreements and term auction deposits.
It said the term auction deposits would have a rate of 250 basis points above the central bank rate of 8.50 percent.
Mopping up excess liquidity makes it expensive to hold dollars, which in turn lends support to the shilling.
Before the dollar sale, the shilling had weakened, undermined by demand from sectors like telecommunications, said Martin Runo, a senior trader at Chase Bank.
Technical analysis of the 14-day and 50-day weighted moving averages suggested the shilling would stay on a weakening trend in the near term.
Traders have forecast that the shilling could trade in the 96.30 to 97.30 in the next few days.
The shilling has lost 6.3 percent to the dollar this year.
The embattled local currency has been hit by a slowdown in foreign exchange revenues from tourism after a number of militant attacks that scared visitors away, and by a decline in horticulture earnings blamed on uneven rain.
Reuters