Shilling Appreciated Marginally against the Dollar Last Week

Last week, the Kenya Shilling appreciated marginally against the US Dollar to 100.7 shillings from 100.8 shillings the previous week.

The marginal appreciation of the local currency was propped up by diaspora remittances and reduced dollar demand from oil and merchandise importers.

The Kenya Shilling has appreciated by 1.1 percent year to date, with analysts from Cytonn Investments still of the view that the shilling should remain relatively stable to the dollar in the short term.

The shilling will be supported by:

The narrowing of the current account deficit with preliminary data on balance of payments indicating continued narrowing to 4.7 percent of GDP in the 12-months to February 2019, from 5.5 percent recorded in February 2018.

The decline has been attributed to improved agriculture exports, increased diaspora remittances, strong receipts from tourism, and lower food and SGR-related equipment relative to 2017.

Improving diaspora remittances, which increased by 17.2 percent m/m in January 2018 to USD 244.8 million from USD 208.9 million recorded in a similar period of review in 2018 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’s supportive activities in the money market, such as repurchase agreements and selling of dollars.

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.

The Eurobonds

According to Bloomberg, the yield on the 10-year Eurobonds issued in 2014 declined by 0.1 percentage points to 6.1 percent from 6.2 percent while that of the 5-year remained unchanged at 4.2 percent as in the previous week.

Since the mid-January 2016 peak, yields on the Kenyan Eurobonds have declined by 4.6 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 0.2-years and 5.2-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 Eurobond and 30-year Eurobond remained unchanged at 7.1 percent and 8.1 percent, respectively, from the previous week.

Since the issue date, the yields on both the 10-year and 30-year Eurobond have both declined by 0.2 percentage points.