Central Bank of Kenya (CBK). Photo/Reuters

A cut in an inland fibre optic cable on Monday affected internet service providers and by Wednesday had interrupted normal trading of the commercial banks.

Traders said banks were also short-covering dollar positions, while reduced shilling liquidity before the start of a new cash reserve ratio cycle on March 15 and government disbursements were seen putting pressure on the local currency.

At 0708 GMT, commercial banks quoted the local currency at 83.40/60 per dollar, after weakening 0.8 percent to touch 83.45/65. Thursday’s close was 82.75/95.

The shilling last traded around this level on Feb. 6 when it touched 83.90 to the dollar.

“There was pent-up (dollar) demand from importers across the board,” said Duncan Kinuthia, head of trading at Commercial bank of Africa.

Dickson Magecha, a trader at Standard Chartered Bank, said interbank dollar covering on thin volumes drove the shilling lower, with support seen at 83.65.

“If we break that level, then we will go to 84 per dollar,” said Magecha.

The weighted average interbank rate eased on Thursday to 26.4 percent with 7.88 billion shillings ($95.23 million) borrowed among the commercial banks, down from 27.2 percent a day earlier.

“The high interest may be the only saving grace of the shilling because it makes holding long dollar positions costly,” said Kinuthia.

($1 = 82.7500 Kenyan shillings) (Reporting by Beatrice Gachenge; Editing by George Obulutsa and Richard Borsuk)

 

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