The Kenyan Shilling remained resilient in 2018, appreciating by 1.3 percent against the USD during the year to close at 101.3 shillings from 103.2 shillings in 2017.
The resilience of the local currency in 2018 saw it reclassified to a stabilized arrangement from floating by the IMF, necessitated by the fact that Kenya Shilling has remained within a margin of 2.0 percent against its “de facto” anchor exchange rate with the US Dollar for at least 6-months.
On a YTD basis, the Kenyan Shilling has gained by 0.1 percent against the US Dollar, and analysts from Cytonn Investments expect it to remain stable within a range of 101.0 and 104.0 shillings against the USD in 2019, with the underlying fundamentals still similar to the previous year.
The CBK’s intervention activities, as they have sufficient forex reserves to protect the shilling against any instability, currently at USD 8.0 billion equivalent to 5.2-months of import cover will help the shillings wade through 2019.
2019 will also see improving diaspora remittances, having increased by 42.5 percent to USD 2.2 billion during the first 10-months of 2018, from USD 1.6 billion during the same period in 2017.
The largest contributor to Kenya’s increased diaspora remittances in 2018 was North America at USD 1.2 billion 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.
The continued narrowing of the current account deficit to 5.3 percent in the 12-months to September 2018, compared to 6.5 percent in September 2017 will in 2019 help the local currency.
The narrowing of the current account deficit is largely due to increased exports of tea and horticulture, increased diaspora remittances, strong receipts from tourism, and lower imports of food and SGR-related equipment in 2018, relative to 2017.
Come 2019, the current account is likely to come under pressure mainly due to the continued rise of the oil’s import bill mainly attributed to increased domestic demand, coupled with an expected recovery of global oil prices.
2018 saw a decline in food imports and improved agricultural exports as production improves due to improved weather conditions.