During the week, the Kenya Shilling appreciated by 0.5 percent against the US Dollar to close at 102.8 shillings from 103.3 shillings recorded in the previous week.
The appreciation of the local currency according to Cytonn Investments was attributed to positive investor sentiment owing to the repeal of interest cap during the week.
On YTD basis, the shilling has depreciated by 0.9 percent against the US 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.
As before, 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.
This 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.
There is an improving diaspora remittance, which has 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 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 also 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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