Kenyan Shilling remains Stable despite Speculations

The Kenyan shillings has maintained stability despite speculations by some quarters that it was being overvalued by the Central Bank of Kenya (CBK).

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

Analysts from Cytonn Investments attributed the stability of the shilling on inflows from investors buying government securities that matched dollar demand from merchandise importers.

The Kenya Shilling has appreciated by 0.7 percent year to date in addition to the 1.3 percent appreciation in 2018.

“In our view, the shilling should remain relatively stable to the dollar in the short term,” said Cytonn.

The shillings, just like the previous weeks, continues to enjoy 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 in the current deficit account has been attributed to improved agriculture exports, increased diaspora remittances, strong receipts from tourism, and lower food and SGR-related equipment relative to 2017.

Kenyans living in the diaspora have stepped up their remittances which have increased cumulatively by 3.8 percent in Q1’2019 to USD 665.6 million from USD 641.5 million recorded in a similar period of review in 2018.

The rise in diaspora remittances is due to:

1. • Increased uptake of financial products by the diaspora due to financial services firms, particularly banks, targeting the diaspora.
   • 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 of the local currency with its activities in the money market, such as repurchase agreements and selling of dollars.

There are still high levels of forex reserves, currently at USD 8.0 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.