Last week, the Kenyan shilling dropped 0.5 percent against the US dollar to close at 101.2 shillings, from 100.7 shillings the previous week, mainly driven by increased dollar demand from banks and importers over uncertainty regarding an IMF stand-by arrangement.
On September 13, it was revealed that Kenya may be unable to procure the next funding from IMF following the expiry of the timelines for review of the credit facility. Reuters quoted Treasury CS Henry Rotich saying the facility is no longer accessible but the state will carry on engaging the fund.
According to Cytonn Investments, the Kenya Shilling has appreciated by 1.9 percent year to date and is expected to remain relatively stable against the dollar in the short term despite the expiry of the IMF standby precautionary facility.
The projection, says Cytonn, is supported by the narrowing of the current account deficit to 5.8 percent in the 12-months to June 2018, from 6.3 percent in March 2018, attributed to improved agriculture exports, and lower capital goods imports following the completion of Phase I of the Standard Gauge Railway (SGR) project,
Stronger inflows from principal exports including coffee, tea, and horticulture, are expected to keep the Shilling consistent. The three exports increased by 10.8 percent during the month of May to 24.3 billion shillings from 21.9 billion shillings in April, with the exports from coffee, tea and horticulture improving by 11.0 percent, 19.1 percent and 2.0 percent m/m, respectively.
The prediction follows the improving diaspora remittances, which increased by 71.9 percent year to year to year to 266.2 million US dollars in June 2018 from 154.9 million dollars in June 2017 and by 4.9 percent month to month, from 253.7 million US dollars in May 2018, with the largest contributor being North America at 130.1 million dollars.
The trend was attributed to the recovery of the global economy, increased uptake of financial products by the diaspora due to financial services firms, particularly banks, targeting the diaspora, and new partnerships between international money remittance providers and local commercial banks making the process more convenient.
Finally, the high forex reserves, currently at 8.5 billion US dollars, equivalent to 5.7 months of import cover is expected to contribute to the Shilling’s stability.