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Kenyan Shilling Edged Down 0.6% But Still Resilient against the US Dollar

BY Soko Directory Team · March 25, 2019 05:03 am

Last week, the Kenya Shilling edged down by 0.6 percent against the US Dollar to 100.8 shillings from 100.2 shillings the previous week.

The local currency has appreciated by 1.0 percent year to date, with analysts from Cytonn Investments still holding the view that the shilling should remain relatively stable to the dollar in the short term.

The shilling is still protected by the narrowing of the current account deficit with preliminary data on balance of payments indicating continued narrowing to 4.6 percent of GDP in the 12-months to January 2019, from 5.5 percent recorded in January 2018.

The decline in the current account 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 is a continued improving diaspora remittances, which increased by 38.6 percent in 2018 to USD 2.7 billion from USD 1.9 billion recorded in 2017 due to increased uptake of financial products by the diaspora due to financial services firms, particularly banks, targeting the diaspora.

The Central Bank of Kenya has been supportive of the local currency with its activities in the money market, such as repurchase agreements and selling of dollars.

There are high levels of forex reserves, currently at USD 8.1 billion equivalent to 5.3-months of import cover, above the statutory requirement of maintaining at least 4-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.

Kenyan Eurobond

According to Bloomberg, the yield on the 10-year Eurobonds issued in 2014 declined by 0.1 percentage points to 6.2 percent from 6.3 percent while that of the 5-year remained unchanged at 4.1 percent.

Since the mid-January 2016 peak, yields on the Kenyan Eurobonds have declined by 4.7 percentage points and 3.5 percentage points for the 5-year and 10-year Eurobonds, respectively, an indication of the relatively stable macroeconomic conditions in the country.

Key to note is that these bonds have 0.3-years and 5.3-years to maturity for the 5-year and 10-year, respectively.

For the February 2018 Eurobond issue, during the week, the yields on 10-year Eurobonds rose by 0.1 percentage points to 7.1 percent from 7.0 percent the previous week.

The 30-year Eurobond remained unchanged at 8.1 percent. Since the issue date, the yields on both the 10-year and 30-year Eurobond have both declined by 0.2 percentage points.

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