The Kenyan shilling slightly dipped during the week but still maintained resilience against the US Dollar, further proving those who have been telling its downfall wrong.
During the week, the Kenyan Shilling depreciated by 0.1 percent against the US Dollar to close at 101.2 shillings from 101.1 shillings the previous week.
According to analysts from Cytonn Investments, the slight depreciation of the local currency was due to increased dollar demand from merchandise and oil importers buying dollars to meet their end-month obligations.
The Kenya Shilling has appreciated by 0.6 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 Investments.
Since the year began, the shilling has continued 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 has been attributed to improved agriculture exports, increased diaspora remittances, strong receipts from tourism, and lower food and SGR-related equipment relative to 2017.
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Kenyans living in the diaspora have increased their remittances back home. The remittances have increased cumulatively by 3.8 percent in the 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:
- 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 continued to remain supportive 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.
Source: Cytonn Report