Shilling Continues To Shame Those Who Predicted its Doom

The Kenyan shilling has continued to shame those who had predicted its doom by remaining resilient against the US Dollar.

Despite numerous reports and sentiments by analysts that the local currency would receive a heat from the dollar as early as the start of 2018, the shilling has continued to shine.

Last week, the Kenya Shilling gained by 0.3 percent against the US dollar to close at 100.5 shillings from 100.7 shillings the previous week.

According to analysts from Cytonn, the strengthening of the local currency was supported by inflows from diaspora remittances amidst tightened liquidity in the money markets.

The Kenyan shilling has gained by 2.6 percent year to date. The shilling was also supported by the narrowing of the current account deficit, to 8.9 percent of GDP in Q1’2018 compared to 11.3 percent in Q1’2017 on account of the faster growth of exports at 7.1 percent, compared to imports growth of 6.5 percent.

There is also 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 percent y/y.

There is improving diaspora remittances, which increased by 16.9 percent to USD 253.7 million in May 2018, from USD 217.1 million in April 2018, with the largest contributor being North America at USD 122.8 million attributed to:

• Recovery of the global economy
• Increased uptake of financial products by the diaspora due to financial services firms, particularly banks, targeting the diaspora
• New partnerships between international money remittance providers and local commercial banks making the process more convenient

Kenya’s high forex reserves, currently at USD 8.8 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.