KES Depreciates against the Dollar by 1.1pc  in H1’2017

The Kenya Shilling depreciated against the US Dollar by 1.1 percent  in H1’2017 to close at Kshs 103.7 from Kshs 102.5 at the end of 2016, mainly due to heightened dollar demand from oil and retail importers.

Kenya National Bureau of Statistics (KNBS) Quarterly Gross Domestic Product Report noted that, “The Kenyan Shilling strengthened against most of its major trading currencies. The most notable gain was a 12.1 per cent strengthening against the Pound Sterling.”

“However, the Shilling weakened against the South African Rand, Yen and US Dollar during review period.”

According to Cytonn Investments investor brief, East African currencies depreciated against the dollar, losing an average of 1.1 percent  YTD and 3.2 percent in the last 12 months. “This was driven by increased food imports during the drought period and increased oil imports as importers took advantage of the lower global oil prices that were expected to rise.”

“Key to note is that most currencies that appreciated against the dollar also experienced gains in their stock market indices as their near term outlooks remained positive and dollar flows from investors increased,” said Cytonn.

Last week, the Shilling remained relatively stable against the dollar to close at Kshs 103.7.  

Cytonn reiterates that the shilling should remain relatively stable in the short term. “We expect the currency to remain relatively stable against the dollar supported by the CBK, which has sufficient reserves (equivalent to 5.3 months of import cover) to support the shilling in the short term.”

This would be  supported by:

(i) the high forex reserve level currently at USD 8.0 bn (equivalent to 5.3 months of import cover),

(ii) the IMF precautionary credit facility of USD 1.5 bn (equivalent to 1.0 more month of import cover) that Kenya can utilize to stabilize the shilling in case of adverse movement in the forex market,

(iii) increased diaspora remittances that grew by 6.2 percent to Kshs 44.7 bn in Q1’2017, from Kshs 42.1 bn in Q1’2016, and

(iv) declining global oil prices given that Kenya is net oil importer.