The Kenya Shilling depreciated against the US Dollar during the week to close at 103.7 shillings from 103.6 shillings recorded the previous week as importers accumulate more dollar holdings due to increased political uncertainty awaiting the presidential re-run election outcome.
On a year to date basis, the shilling has depreciated against the dollar by 1.2 percent with economic analysts, Cytonn, being of the view that the shilling should remain relatively stable against the dollar in the short term, supported by:
- The weakening of the USD in the global markets,
- The CBK’s activity, as they have sufficient forex reserves, currently at USD 7.2 billion (equivalent to 4.8 months of import cover). The key factor to watch is the current account deficit that worsened to 6.2 percent of GDP in Q2’2017, as compared to 5.3 percent of GDP in a similar period last year.
In their weekly report, Cytonn Investments is projecting the inflation rate for the month of October to decline to a range of between 6.4 – 6.7 percent from 7.1 percent in September mainly due to an expected decline in food prices following favorable weather conditions in the month despite an increase in fuel prices during the month with the inflationary pressures expected to ease in the last two months of 2017, but average 8.4 percent over the course of the year, which is above the upper bound of the government target range of 2.5 – 7.5 percent.
The pressure on the Kenyan shilling has been attributed to the increasing political uncertainties in the country. The presidential re-run polls were held on 26th but were boycotted by the main opposition candidate, Raila Odinga. Investors are unsure of what might happen in the event that the Independent Electoral and Boundaries Commission will announce Uhuru Kenyatta as the winner. The Central Bank of Kenya has, however, insisted that the shilling is not under pressure.