The Kenya Shilling remained stable against the US Dollar to close at 102.6 shillings last week unchanged from the previous week.
The stability of the local currency during the week was attributed to inflows from remittances and tight liquidity in the money market, which matched the increased demand from oil and other goods importers.
The Kenya Shilling has appreciated against the US Dollar by 0.6 percent on a year to date basis and in Cytonn Investments’ view, the shilling should remain relatively stable to the dollar in the short term.
The shilling is enjoying the narrowing of the current account deficit to 5.3 percent in the 12-months to September 2018, from 6.5 percent in September 2017. The narrowing deficit has been attributed to improved agriculture exports, increased diaspora remittances, strong receipts from tourism, and lower food and SGR-related equipment relative to 2017.
There has been improving diaspora remittances, which increased by 6.9 percent m/m growth in diaspora remittances in the month of October 2018 to USD 219.2 million from USD 205.1 million recorded in September.
The y/y growth came in at 18.2 percent from USD 185.5 million recorded in October 2017. Cumulatively, total diaspora remittances rose by 39.5 percent in the 12 months to October 2018, to USD 2.6 billion, from USD 1.9 billion recorded in a similar period in 2017.
This has been 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 levels of forex reserves, currently at USD 8.0 billion, equivalent to 5.2 months of import cover, compared to the one-year average of 5.1 months and above the EAC region’s convergence criteria of 4.5 months of imports cover will shield the shilling in the short term.