Shilling Still Resilient against the Dollar as it Hold Ground in February

The Kenya Shilling appreciated by 0.8 percent against the US Dollar during the month of February to 100.1 shillings from 100.9 shillings at the end of January.

Investors have attributed to the resilience of the shilling during the month of February to hard currency inflows from diaspora remittances and offshore investors buying government debt, coupled with thin end month dollar-demand from oil importers.

During the week, the Kenya Shilling appreciated by 0.2 percent against the US Dollar to close at 100.0 shillings from 100.2 shillings in the previous week.

Last week saw inflows from offshore investors buying government debt subduing thin dollar demand from oil and goods importers.

On a YTD basis, the shilling has appreciated by 1.2 percent against the US Dollar in addition to 1.4 percent in 2018.

The shillings will continue to enjoy the support of the narrowing of the current account deficit to 5.1 percent in the 12-months to November 2018, from 6.5 percent in November 2017.

There has been improved agriculture export, increased diaspora remittances, strong receipts from tourism, and lower food and SGR-related equipment relative to 2017.

Kenya has also realized improving diaspora remittances, which increased by 38.6 percent in 2018 to USD 2.7 billion from USD 1.9 billion recorded in 2017.

The shilling will also enjoy the CBK’s activities in the money market, such as repurchase agreements and selling of dollars.

High levels of forex reserves, currently at USD 8.2 billion equivalent to 5.4-months of import cover, compared to the one-year average of 5.1 months will also shield the shilling.

The Average Interbank Rate

The average interbank rate declined to 2.6 percent during the month of February from 3.5 percent in January, pointing to improved liquidity during the month, supported by government payments and debt redemptions.

During the week, the average interbank rate rose to 4.1 percent, from 2.0 percent the previous week, while the average volumes traded in the interbank market increased by 93.5 percent to 5.1 billion shillings from 2.6 billion shillings the previous week.

The rise in the interbank rate points to tightening liquidity conditions in the money market as banks were mobilizing funds to pay for tax remittances.