Last week, the Kenya Shilling depreciated by 0.3 percent against the US Dollar to close at 102.6 shillings from 102.3 shillings the previous week.
The slight depreciation of the local currency was due to excess local currency liquidity in the money markets according to Cytonn Investments.
The Kenya Shilling has appreciated by 0.5 percent year to date in addition to the 1.3 percent appreciation in 2018, and in “our view, the shilling should remain relatively stable to the dollar in the short term.”
The local currency continues to enjoy the narrowing of the current account deficit with data on balance of payments indicating continued narrowing to 3.2 percent of GDP in the 12-months to April 2019, from 8.9 percent recorded in April 2018.
The decline in the current account deficit has been attributed to the resilient performance of exports particularly horticulture and coffee, strong diaspora remittances, and higher receipts from tourism and transport services.
Kenyans living in the diaspora have improved their remittances. The remittances have increased 3.8 percent in May 2019 to USD 1.2 billion from USD 1.1 billion recorded in a similar period of review in 2018.
The increase in diaspora remittances has been attributed to:
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 still high levels of forex reserves, currently at USD 9.0 billion (equivalent to 5.7-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.