Kenya Shilling Loses 0.2 Percent against US Dollar to Close at Ksh 101.5

During the week, the Kenyan Shilling depreciated by 0.2 percent against the US Dollar to close at 101.5 shillings from 101.3 shillings the previous week due to a spike in dollar demand from oil and merchandise importers.

The Kenya Shilling has appreciated by 0.5 percent year to date in addition to the 1.3 percent appreciation in 2018.

According to analysts from Cytonn Investments, the Shilling is expected to remain relatively stable against the dollar in the short term.

This view is supported by the narrowing of the current account deficit with data on balance of payments indicating continued narrowing to 4.5 percent of GDP in the 12-months to April 2019, from 5.5 percent recorded in April 2018.

The decline has been attributed to the resilient performance of exports, particularly horticulture and coffee, strong diaspora remittances, and higher receipts from tourism and transport services.

Growth of imports also slowed mainly due to a decline in the importation of food.

Additionally, improving diaspora 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, is expected to support the Shilling’s resilience against the dollar.

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; and
• New partnerships between international money remittance providers and local commercial banks making the process more convenient.

The Central Bank of Kenya remains supportive of activities in the money market such as repurchase agreements and selling of dollars.

There are currently high levels of forex reserves, currently at USD 10.1 bn (equivalent to 6.4-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.

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