NAIROBI, Feb 1 (Reuters) – Tight liquidity and lack of dollar demand in Kenya’s currency market on Wednesday helped the shilling firm 0.7 percent ahead of a rate decision by the central bank later in the day.

A Reuters poll showed the central bank is likely to leave its key rate unchanged at 18 percent, sticking to a tight policy stance to maintain support for the currency and ensure inflation keeps heading down.

The shilling, which firmed 1.2 percent to its highest level this year on Tuesday, was posted at 83.30/50 per dollar at 0716 GMT, stronger than Tuesday’s close of 83.90/84.10.

“Lack of dollar demand is what is helping the shilling. As long as there is no access to credit because of the high interest rates the shilling will continue strengthening,” said Kennedy Butiko, deputy head of Treasury at Bank of Africa.

“Inflation is still in double digits, which is still high and we expect the MPC to hold the central bank rate,” he said.

Inflation in the east Africa’s biggest economy fell for a second straight month to 18.31 percent in January from 18.93 percent in December.

Since a dramatic collapse of the shilling in the middle of last year, the central bank has moved to support the currency with high interest rates and money market operations to keep a tight rein on supply of the domestic currency.

“The next target is 83.00, but if we breach that then 82.00 will come into play,” said Ignatius Chicha, head of markets at Citibank.

“With the tight liquidity and lack of dollar orders, guys stuck with dollars are selling to fund shilling positions.”

Reporting by Kevin Mwanza, Reuters



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