Kenyan Shilling Likely To Enter 2020 With Neck Above The Water

By Juma / Published December 30, 2019 | 9:00 am

The Kenyan Shilling Dollar Turnover Kenyan Shilling

Last week, the Kenya Shilling appreciated by 0.1 percent against the US Dollar to close at 100.8 shillings from 100.7 shillings recorded the previous week, mostly supported by inflows from tourism and diaspora remittances amid slow demand from importers.

On a YTD basis, the shilling has appreciated by 1.1 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 from Cytonn Investments.

The shilling is enjoying the narrowing of the current account deficit, with preliminary data indicating that Kenya’s current account deficit in Q2’2018 was 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 balance (a scenario where imports are greater than exports) by 1.7 percent and a rise in secondary income transfers (transfers recorded in the balance of payments whenever an economy provides or receives goods, services, income or financial items) by 5.1 percent.

There is an improving diaspora remittance, which has increased cumulatively by 5.0 percent in the 12-months to November 2019 to USD 2.8 billion from USD 2.7 billion recorded in a similar period of review in 2018 while foreign capital inflows, with investors looking to participate in the equities market.

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

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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.

Rates in the fixed income market have remained relatively stable as the government rejects expensive bids. The government is 5.6 percent ahead of its domestic borrowing target, having borrowed 164.6 billion shillings against a pro-rated target of 155.9 billion shillings.

“We expect an improvement in private sector credit growth considering the repeal of the interest rate cap. This will result in increased competition for bank funds from both the private and public sectors, resulting in upward pressure on interest rates.

Owing to this, our view is that investors should be biased towards short-term fixed-income securities to reduce duration risk.”

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About Juma

Juma is an enthusiastic journalist who believes that journalism has power to change the world either negatively or positively depending on how one uses it.(020) 528 0222 or Email: info@sokodirectory.com

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