CBK Remains Supportive As Shilling Depreciates 0.1%

The Kenyan shilling remained resilient against the US Dollar last week according to stats compiled by Cytonn Investments.

Last week saw the local currency shedding off 0.1 percent against the US Dollar to close at 103.4 shillings from 103.2 shillings the previous week.

On a year to date basis, the shilling has depreciated by 1.5 percent in comparison to the 1.3 percent appreciation in 2018.

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

The local currency has continued to enjoy the narrowing of the current account deficit. The current account deficit narrowed to 4.2 percent of GDP in the 12 months to June 2019 from 5.4 percent.

The narrowing of the current account deficit has been attributed to the resilient performance of exports in horticulture and higher receipts from tourism and transport sector.

Kenyans in the diaspora have improved their remittances, hence shielding the shilling. The diaspora remittances increased cumulatively by 13.6 percent in the 12 months to June.

The Central Bank of Kenya has remained supportive of the shilling through its activities in the money markets such as purchase agreements and selling of the dollar.

There are high levels of forex reserves, currently at 9.5 billion shillings, above the statutory requirement of maintaining at least 4.0 months of import cover and the ECC region’s convergence criteria of 4.5 months of import cover.

The Kenyan shilling received a hit against the dollar after the Director of Criminal Investigation, Noordin Haji, announced the arrest of the then National Treasury CS Henry Rotich.

Henry Rotich has since been replaced by Ukur Yattani, who was appointed by President Uhuru Kenyatta in acting capacity.

The ongoing demonetization process has also had an effect on the shilling as people rush to exchange the old currency notes with the new generational notes.

The demonetization process is expected to come to an end at the end of the month of September.