During the week, the Kenya Shilling appreciated by 0.1 percent against the US Dollar to close at 103.8 shillings from 103.9 shillings recorded the previous week.
The slight appreciation of the local currency was supported by inflows from diaspora remittances amidst thin dollar demand from merchandise importers.
On a YTD basis, the shilling has depreciated by 2.0 percent against the dollar, in comparison to the 1.3 percent appreciation in 2018.
“In our view, the shilling should remain relatively stable against the dollar in the short term,” said analysts from Cytonn Investments.
The shilling continues to 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 July 2019, from 5.0 percent recorded in December 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.
There has been improving diaspora remittances, which have increased cumulatively by 11.1 percent in the 12-months to July 2019 to USD 2.8 billion from USD 2.5 billion recorded in a similar period of review in 2018.
The rise of 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) supportive activities in the money market, such as repurchase agreements and selling of dollars.
There are high levels of forex reserves, currently at USD 9.2 billion (equivalent to 5.8-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.