Kenyan Shilling Declined 0.5 Percent Against USD in October

The Kenya Shilling depreciated by 0.5 percent against the US Dollar during the month of October to close the month at 103.8 shillings from 103.2 shillings in September.

This was primarily due to importers accumulating dollar holdings due to increased political uncertainty surrounding the presidential election held during the month.

On a year to date basis, the shilling has depreciated against the dollar by 1.2 percent. According to Cytonn Investments, 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 7.1 billion (equivalent to 4.7 months of import cover).

The key factor to watch is the current account deficit that worsened to 6.2 percent of Gross Domestic Product (GDP) in Q2’2017, as compared to 5.3 percent of GDP in a similar period last year.

Eurobond

According to Bloomberg, yields on the 5-year and 10-year Eurobonds, with 1.6-years and 6.6-years to maturity declined by 30 bps during the month, to close at 3.8 percent and 6.1 percent from 4.1 percent and 6.4 percent respectively at the end of September despite the uncertainty surrounding the repeat presidential elections conducted during the month.

Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 5.0 percent points and 3.6 percent points for the 5-year and 10-year Eurobonds, respectively, due to stable macroeconomic conditions in the country.

The declining Eurobond yields and stable rating by Standard & Poor (S&P), in spite of the political uncertainty around the presidential poll re-run, are indications that Kenya’s macroeconomic environment remains stable and hence an attractive investment destination. However, concerns from Moody’s around Kenya’s rising debt to GDP levels may see Kenya receive a downgraded sovereign credit rating.