The Kenyan shilling is still holding on against the US Dollar amid fears that it was on the receiving end due to the ongoing demonetization process.
Last week, the Kenya Shilling appreciated marginally against the US Dollar to close at 103.1 shillings from 103.3 shillings recorded the previous week.
According to the weekly report from Cytonn Investments, the marginal appreciation of the local currency was supported by inflows from diaspora remittances and portfolio investors buying government debt amid dollar demand from merchandise importers.
The Kenya Shilling has depreciated by 1.2 percent year to date, in comparison to the 1.3 percent appreciation in 2018.
“Despite the recent depreciation, we still expect the shilling to remain relatively stable to the dollar in the short term,” said Cytonn Investments.
The shillings continues to be protected by 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 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 in the diaspora have continued with their increased 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 rise in diaspora remittances is due to:
- 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 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 9.4 billion (equivalent to 5.9-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.