Kenyan Shilling Holds Ground Against The US Dollar

Last week, the Kenya Shilling remained stable against the US Dollar to close at 103.8 shillings unchanged from the previous week, due to subsiding dollar demand from the energy sector and tightening liquidity in the money market.

On a YTD basis, the shilling has depreciated by 1.9 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 in the weekly Cytonn Report.

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 5.5 percent recorded in July 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 and SGR- related equipment.

There is an improving diaspora remittance, which has increased cumulatively by 8.9 percent in the 12-months to August 2019 to USD 2.8 billion from USD 2.6 billion recorded in a similar period of review in 2018.

The rise in diaspora remittance was due to:

1. • Increased uptake of financial products by the diaspora due to financial services firms, particularly banks, targeting the diaspora, and,
   • 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 with its activities in the money market, such as repurchase agreements and selling of dollars.

There are high levels of forex reserves, currently at USD 9.0 billion (equivalent to 5.6-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.

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