Inflows from Investors on Government Securities Stabilized the Shilling Last Week

Last week, the Kenyan Shilling remained stable against the US Dollar to close at 101.1 shillings unchanged from the previous week.

The stability of the local currency was supported by inflows from investors buying government securities that matched dollar demand from merchandise importers.

The Kenya Shilling has appreciated by 0.7 percent on a year to date in addition to 1.3 percent in 2018, and in “our view, the shilling should remain relatively stable to the dollar in the short term,” said Cytonn Investments.

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The shillings are still enjoying the narrowing of the current account deficit with preliminary data on balance of payments indicating continued narrowing to 4.5 percent of GDP in the 12 months to March 2019, from 5.5 percent in the 12 months to March 2018.

The decline has been supported by resilient horticultural exports, strong diaspora remittances, and improved transport service receipts.

There is an improving diaspora remittance, which increased cumulatively by 3.8 percent in the first 3 months of 2019 to USD 665.6 million from USD 641.5 million recorded in a similar period of review in 2018.

The rise is due to:

1. • 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,

The Central Bank of Kenya (CBK) has remained supportive 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 5.2-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.

Read: More on the shilling performance found in the Weekly Cytonn Report.