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Shilling Holds Stability Against US Dollar to Close May at Ksh. 101.4

BY Soko Directory Team · June 3, 2019 07:06 am

The Kenya Shilling remained stable against the US Dollar for the second consecutive month to close at 101.4 shillings in May.

The performance remained unchanged from the previous month with inflows from diaspora remittances and offshore investors offsetting end month dollar demand from oil and merchandise importers.

During the first week of June, the Kenya Shilling depreciated by 0.1 percent against the US Dollar to close at 101.4 shillings from 101.2 the previous week, driven by increased dollar demand from merchandise and oil importers buying dollars to meet their end-month obligations.

SEE ALSO: Equities in May Fall but Regains Positive Performance in Week 1 of June

On a YTD basis, the shilling has appreciated by 0.5 percent against the US Dollar in addition to 1.3 percent in 2018.

According to Cytonn Investments Weekly Report, the shilling should remain relatively stable against the dollar in the short term.

The stability will be 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 lower imports of food,

Consecutively, improving diaspora remittances, which have increased cumulatively by 3.8 percent in the Q1’2019 to 665.6 million dollars, from 641.5 million recorded in a similar period of review in 2018 will support the shilling’s resilience.

SEE ALSO: Real Estate Records Increased Activity in the Residential Sector in May

The improved diaspora remittance is due to a rise in uptake of financial products by the diaspora due to financial services firms, particularly banks, targeting the diaspora.

Also, the increase was supported by new partnerships between international money remittance providers and local commercial banks making the process more convenient.

CBK’s supportive activities in the money market, such as repurchase agreements and selling of dollars is also set to support the shilling’s stability.

READ: May in Focus: T-Bills Registered an Overall Under-subscription

With high levels of forex reserves, the shilling will no doubt hold its strength. Currently, the forex reserves stand at an all-time high of 10.1 billion dollars – 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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