Shilling Slightly Depreciates But Still Resilient Against the Dollar

Kenya Shilling depreciated by 0.2 percent last week against the US Dollar to close at 100.4 shillings to the dollar from 100.2 shillings the previous week.

The slight depreciation of the shilling against the dollar was as a result of increased dollar demand from oil importers.

On a year-to-date basis, the shilling has gained 2.7 percent against the USD with analysts at Cytonn Investments holding the view that the shilling should remain relatively stable against the dollar in the short term, supported by:

1. Stronger horticulture export inflows were driven by increasing production and improving global prices,
2. Improving diaspora remittances, which increased by 50.6 percent to USD 222.2 million in March 2018 from USD 147.5 million in March 2017 attributed to (i) increased uptake of financial products by the diaspora due to financial services firms, particularly banks, targeting the diaspora, and (ii) new partnerships between international money remittance providers and local commercial banks making the process more convenient. Key to note is that in 2017, diaspora remittances became the largest foreign exchange earner at 202.9 billion shillings, exceeding tea exports and tourism receipts, which earned 119.9 billion shillings and 147.2 billion shillings respectively.
3. High forex reserves, currently at USD 9.1 billion (equivalent to 6.1 months of import cover), which is a decline from USD 9.5 billion (equivalent to 6.4 months of import cover) as at 26th April, attributed to repayment of the outstanding balance of the matured USD 750 million syndicated loan taken in October 2015, and,
4. The USD 1.5 bn stand-by credit and precautionary facility by the IMF, still available until September 2018, after which a new facility will be discussed.