Kenyan Shilling Sinks 1.4 Percent in July But August Seems Promising

The Kenyan shilling shed off 1.4 percent during the month of July but remained resilient against the US Dollar and other global currencies.

The local currency closed the month of July at 103.2 shillings to the dollar from 101.7 shillings to the dollar in June.

According to analysts from Cytonn Investments, the shilling’s tribulations were as a result of the increased dollar-demand from oil and merchandise importers.

Last week, the Kenyan Shilling appreciated by 0.8 percent against the US Dollar to close at 103.0 shillings to the dollar from 103.8 shillings in the previous week.

The slight appreciation of the shillings last week was supported by inflows from diaspora remittances, which outweighed dollar demand from merchandise importers.

The shilling also hit a 3-year low of 104.2 shillings during the month partly driven by market uncertainty following the announcement that the Treasury Cabinet Secretary would be charged with financial misconduct.

On a YTD basis, the shilling has depreciated by 2.4 percent against the US Dollar in comparison to the 1.3 percent appreciation in 2018

The local currency is still under the protection of the narrowing of the current account deficit, with preliminary data indicating that the current account deficit narrowed to 4.2 percent of GDP in 12-months to June 2019, from 5.4 percent recorded in June 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. The growth of imports also slowed mainly due to lower imports of food.

There have been improving diaspora remittances, which have 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 Central Bank of Kenya (CBK) has remained supportive of 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.