Shilling Scaled the Heights By Appreciating 0.6% Last Week

The Kenya Shilling appreciated by 0.6 percent against the US Dollar during the week to a 1-year high of 102.3 shillings from 102.9 shillings the previous week.

According to Cytonn Investments, in their weekly report, the appreciation of the shilling during last week was due to the continued global weakening of the US Dollar.

Cytonn is of the view that the shilling will remain relatively stable against the dollar in the short term, supported by:

1. The calm political environment following the conclusion of the presidential elections,
2. Weakening of the USD in the global markets as indicated by the US Dollar Index, which shed 9.9 percent in 2017, and has already lost 3.3 percent YTD thus hitting a 3-year low, and,
3. CBK’s intervention activities, as they have sufficient forex reserves, currently at USD 7.0 billion (equivalent to 4.7 months of import cover). Of note is that the forex reserves have been on a slight declining trend.

“We are projecting the inflation rate for the month of January to rise to a range of between 4.9 percent – 5.2 percent from 4.5 percent in December,” said Cytonn in their report.

According to Cytonn, the change in inflation will be as a result:

• An increase in food prices as government subsidy on maize flour ended in December 2017
• An increase in fuel prices, which rose 3.7 percent m/m due to higher import prices for petroleum products, as global oil prices rose 5.5 percent to USD 70.5 per barrel during the month
• An increase in electricity prices, owing to an increase in the forex levy charge by 20.7 percent m/m in January.

On the other hand, the global oil prices are expected to rise due to a supply cap enforced by the Oil Producing and Export Countries (OPEC), which will lead to increased cost of transport and electricity production implying the higher cost of living for Kenyan households.

“We expect inflation to average 7.5 percent over the course of the year down from 8.0 percent in 2017, which is within the government target range of 2.5 percent – 7.5 percent,” stated Cytonn.