Shilling Remained Flat Against the Dollar Last Week on Reduced Merchant Demand

Last week, the Kenya Shilling remained relatively flat against the US Dollar, to close at 101.7 shillings from 101.8 shillings recorded the previous week.

Analysts attributed the shilling traits last week to reduced merchant and oil importer demand supported by tight liquidity in the market and inflows from diaspora remittances.

The Kenya Shilling has appreciated against the US Dollar by 0.1 percent year to date. Analysts from Cytonn Investments say that the local currency is set to remain relatively stable for the time being.

The shilling will be shielded with 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, attributed to improved agriculture exports, increased diaspora remittances and strong receipts from tourism.

There has been an improved diaspora remittance, which increased by 6.9 percent m/m in the month of October 2018 to USD 219.2 million from USD 205.1 million recorded in September.

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.

The cumulative increase in remittances from the diaspora is due to 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.

CBK’s activities in the money market, such as repurchase agreements and selling of dollars, and, 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.