Shilling Hits 3-Year Low Following Tribulations At The Treasury

The Kenyan Shilling received a blow from the tribulations at the National Treasury that saw the arrest of the then Cabinet Secretary for Treasury, Henry Rotich and his Principal Secretary, Kamau Thugge.

The events saw the local currency dropping to a 3-year low of 104.0 shillings against the US Dollar immediately it was announced that the Treasury CS was to be charged.

The shilling is slowly recovering from the shock, slightly shedding off 0.7 percent last week to end the week at 103.8 shillings against the US dollar.

According to an analysis by Cytonn Investments, the local currency has depreciated by 1.9 percent on a year-to-date basis, compared to the appreciation of 1.3 percent in 2018.

“Despite the recent depreciation we still expect the shilling to remain relatively stable to the dollar in the short term,” said Cytonn in their weekly report.

The shillings will still enjoy the narrowing of the current account deficit, with preliminary data indicating that the current account deficit narrowed to 4.2 percent of GDP in the 12-months to June 2019, from 5.4 percent recorded in June 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. Growth of imports also slowed mainly due to lower imports of food.

Kenyans living in the diaspora have stepped up their remittances. The remittances from the diaspora community increased cumulatively by 13.6 percent in the 12 months to June 2019 to USD 2.8 billion from USD 2.4 billion 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 Kenyan Shilling through its activities in the money market, such as repurchase agreements and selling of dollars.

There are high levels of forex reserves, currently at USD 9.6 billion (equivalent to 6.0-months of import cover), above the statutory requirement of maintaining at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.