The Kenyan Shilling appreciated by 0.9 percent against the US Dollar last week to a new 1-year high of 100.8 shillings from 101.7 shillings the previous week.
The appreciation of the shilling has been attributed to increased agricultural exports, largely horticultural products which are mostly grown in greenhouses that exceeded dollar demand from manufacturers and oil importers.
On an YTD basis, the shilling has gained 2.3 percent against the USD. According to Cytonn Investments, the shilling should remain relatively stable against the dollar in the short term, supported by:
- Weakening of the USD in the global markets as indicated by the US Dollar Index, which shed 9.9 percent in 2017, and has shed 1.9% YTD
- CBK’s intervention activities, as they have sufficient forex reserves, currently at USD 7.2 billion (equivalent to 4.8 months of import cover). Key to note is that the forex reserves have been gradually declining since April 2017, despite the marginal w/w improvement.
According to the Stanbic Bank’s Monthly Purchasing Manager’s Index (PMI), the business environment in the country remains stable as political tension witnessed in the last half of 2017 continues to dissipate, despite the index declining marginally to 52.9 in January from 53.0 in December 2017, the 2nd highest PMI score since December 2016.
A PMI reading of above the 50-point mark indicates improvements in the business environment, while a reading below 50 indicates a worsening outlook.
Firms reported growth in the value of output, new orders and new export business, despite rising labour and raw material costs that resulted in slightly higher input costs.
Output is expected to continue rising, driven by recovery in agricultural produce, mainly horticulture, as the recovery by the Eurozone, which is Kenya’s main horticultural export destination, continues to boost demand.
Stanbic maintained their GDP growth projections for 2017 and 2018 at 4.8 percent and 5.6 percent, respectively. Fitch Ratings, a global credit rating and research firm, also released their 2018 GDP growth projection this week, expecting 5.5% growth. With output and new export business improving, we maintain our view that the GDP is expected to grow at 5.4% in 2018 supported by the manufacturing, agriculture, real estate, construction and tourism sectors.