The shilling that strengthens to close the last week between 1,900/- and 2,000/- lost the appreciation battle to depreciate to between 2,200/- and 2,300/-.
The CRDB Bank said yesterday that the shilling continued to lose strength against the greenback due to high customer demands for the dollar and interbank activities.
“The local currency last traded at the levels of 2200/2300 to the Dollar and is expected to keep weakening against the greenback,” CRDB said in Market Highlights.
The demand for the greenback comes at a time supply at the Interbank Foreign Exchange Market (IFEM) dropped over 60 per cent between last week and yesterday.
The amount, according to the BoT IFEM report, dropped from last week’s amount of between 20 million US dollars and 30 million US dollars to less than 10 million US dollars this week per trade day.
On Tuesday, the International Monetary Fund (IMF) advises the use of foreign exchange intervention should be limited to cushioning volatility on IFEM and centred on using domestic-currency instruments to address excess liquidity.
The IMF Deputy Managing Director and Acting Chair of the discussion, Mr Min Zhu, said in a statement that the use of foreign exchange intervention should be restricted to smoothing volatility in the foreign exchange market.
“(But), with higher reliance on domestic-currency instruments to address excess liquidity situations,” Mr Zhu said after the discussion.
Such instrument imposed by the central bank, BoT, are monetary policy that include raising minimum statutory deposit ratio by 2.0 per cent to 10 per cent, but sent a negative impact on the money markets after it experienced tight liquidity The shilling in the first half of this year plummeted to about 25 per cent to reach an historical low level of 2,400/- against the US dollars.
BoT pumped 410 million US dollars but failed to lift the local currency.
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