Shilling Stilling Proving Critics Wrong, Appreciates Against the Dollar

The Kenyan shilling has continued to prove those who had predicted its doom wrong by appreciating against the US Dollar by 0.3 percent during the sessions last week.

Last week, the shilling closed at 100.8 shillings to the dollar from 101.1 shillings the previous week. According to financial analysts, the appreciation was attributed to tightened liquidity in the money markets that led to increased demand for the local currency.

On a year-to-date basis, the Shilling has gained 2.3 percent against the US Dollar. Analysts from Cytonn Investments are still of the view that the shilling should remain relatively stable against the dollar in the short term, supported by:

• The narrowing of the current account deficit which stood at 6.1 percent of GDP as at March 2018 from 6.4 percent in December 2017
• Stronger inflows from principal exports which include coffee, tea and horticulture which increased by 9.3 percent during the month of April to 21.9 billion shillings from 20.0 billion shillings in a similar period the previous year, with the exports from coffee, and horticulture increasing by 6.7 percent, and 25.0 percent y/y respectively, while tea exports have declined marginally by 1.6% y/y
• Improving diaspora remittances, which increased by 56.6 percent to USD 217.1 million in April 2018 from USD 138.6 million in April 2017 with the bulk contribution coming from North America at USD 114.0 attributed to (a) recovery of the global economy, (b) increased uptake of financial products by the diaspora due to financial services firms, particularly banks, targeting the diaspora, and (c) new partnerships between international money remittance providers and local commercial banks making the process more convenient,
• High forex reserves, currently at USD 9.0 billion (equivalent to 5.9 months of import cover) and the USD 1.5 billion stand-by credit and precautionary facility by the IMF, still available until September 2018