Kenyan Shilling Appreciated Marginally Against The US Dollar

Last week saw the Kenyan Shilling appreciating marginally against the US Dollar by 0.4 percent to close at 103.3 shillings from 103.7 shillings recorded the previous week.

The marginal appreciation, according to Cytonn Investments, was supported by dollar inflows from offshore investors buying government bonds.

On a YTD basis, the shilling has depreciated by 1.4 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 Cytonn in their weekly report.

The shilling continues to enjoy the narrowing of the current account deficit, with preliminary data indicating that Kenya’s current account deficit improved by 11.8 percent during Q2’2019, coming in at a deficit of 107.6 billion shillings from 122.0 billion shillings in Q2’2018, equivalent to (6.2 percent) of GDP, from (7.6 percent) recorded in Q2’2018.

The improvement of the current account deficit was mainly driven by the narrowing of the country’s merchandise trade deficit by 1.7 percent and a rise in secondary income (transfers) balance by 5.1 percent.

Improving diaspora remittances, which have increased cumulatively by 8.0 percent in the 12-months to September 2019 to USD 2.8 billion from USD 2.6 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 shilling has also continued to enjoy the support of the Central Bank of Kenya (CBK) through its activities in the money market, such as repurchase agreements and selling of dollars.

The shilling is also being cushioned by high levels of forex reserves, currently at USD 8.9 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.