The Kenya Shilling depreciated by 0.3 percent against the US Dollar during the week to close at 103.9 shillings from 103.6 shillings recorded the previous week due to speculation in the forex market following political uncertainty.
On a year to date basis, the shilling has depreciated against the dollar by 1.4 percent. According to Cytonn Investments Limited, the shilling should remain relatively stable against the dollar in the short term supported by:
- The weakening of the USD in the global markets as indicated by the US Dollar Index, which has shed 8.4 percent year to date.
- 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 6.4 percent of GDP in July, as compared to 6.2 percent of GDP in May 2017.
The Monetary Policy Committee (MPC) is set to meet on Thursday, 23rd November 2017 to review the prevailing macroeconomic conditions and give direction on the Central Bank Rate (CBR).
In their previous meeting held in September 2017, the MPC maintained the CBR at 10.0 percent on account of;
- The inflation rate had declined to 8.0 percent in August from 9.2 percent in June, due to a decline in food prices brought about by the rains, albeit depressed.
- A relatively stable foreign exchange market, with foreign reserves at USD 7.5 billion (equivalent to 5.0 months of import cover).
- A resilient banking sector, with the average commercial banks’ liquidity ratio and capital adequacy ratio at 45.6 percent and 19.0 percent above the statutory minimum of 20.0 percent and 14.5 percent respectively, as at August 2017.
Cytonn Investments expects the MPC to maintain rates at the current levels due to a relatively stable macroeconomic environment, as evidenced by:
- Inflation has eased to 5.7 percent from 8.0 percent, due to a drop in food prices,
- The currency has been relatively stable, depreciating by only 0.3 percent over the same period.