Shilling Shames The Naysayers, Holds Ground Against The Dollar

The Kenyan shilling has continued to hold ground against the US Dollar despite numerous concerns from a section of analysts that the local currency was set for a hit from other global currencies such as the dollar.

Last week, the Kenya Shilling appreciated by 0.7 percent against the US Dollar to close at 101.4 shillings from 102.1 shillings recorded the previous week.

According to stats put together by Cytonn Investments, the appreciation last week is the highest it has been since June 14^th of this year, when the shilling closed at Kshs 101.6.

The surge in the shilling was attributed to inflows from offshore investors buying banking stocks following the repeal of the interest rate cap.

On a YTD basis, the shilling has appreciated by 0.5 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. Cytonn has always held this view against the shilling. Will the shilling prove them wrong?

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Preliminary data indicate that Kenya’s current account deficit improved by 11.8 percent during Q2’2019, coming in at a deficit of 07.6 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.

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 improved diaspora remittance which has increased cumulatively by 7.0 percent to USD 2.8 billion as of October 2019, from USD 2.6 billion recorded in a similar period of review in 2018.

According to Cytonn, the shilling will continue to enjoy the foreign capital inflows, with investors looking to participate in the equities market.

The Central Bank of Kenya (CBK) has remained supportive of the shilling with its activities in the money market, such as repurchase agreements and selling of dollars.

Currently, there are high levels of forex reserves, currently at USD 8.8 billion (equivalent to 5.4-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.