Shilling Sheds Off 0.5% Last Week: Should We Start Worrying?

The Kenya Shilling deprecated by 0.5 percent against the US Dollar during the week to 101.3 shillings to the dollar from 100.8 shillings to the dollar the previous week.

According to Cytonn Investments, the depreciation was due to increased supply of the shilling and a rise in dollar demand by corporates.

On a YTD basis, the shilling has gained 1.9 percent against the USD. According to Cytonn, 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 shed 9.9 percent in 2017, and has shed 3.4 percent 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. Key to note is that the IMF is set to meet with the National Treasury in the course of next week to review the 3-year USD 1.5 billion standby credit facility which expires in March. The facility was granted on condition that the government worked on lowering its budget deficit to 3.7 percent of GDP by 2018/19, while projections as per the Draft 2018 BPS indicated a deficit of 6.0 percent.

Citibank project that the Kenyan economy will expand by 5.6 percent in 2018 driven by the recovery of the tourism and financial services sectors, and growth in manufacturing and construction, as the business environment continues to recover after the 2017 elections.