Slow But Steady, Local Currency Still Holding Ground Against The Dollar

The Kenyan shilling is still holding ground against the US Dollar amid speculations that it will soon plunge as pressure on the local currency mounts.

According to the weekly report released by Cytonn Investments, the Kenya Shilling appreciated by 0.7 percent against the US Dollar to close at 102.1 shillings last week from 102.8 shillings recorded in the previous week.

The appreciation of the local currency was attributed to inflows from offshore investors buying banking stocks after parliament removed a cap on commercial lending rate.

On a YTD basis, the shilling has depreciated by 0.2 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.

Preliminary data indicate 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.

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.

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Kenya has continued to witness 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 Central Bank of Kenya (CBK) supportive activities in the money market, such as repurchase agreements and selling of dollars.

High levels of forex reserves, currently at USD 98.9 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.