Kenyan Shilling Still Smiling Against The US Dollar

Last week, the Kenya Shilling appreciated marginally against the US Dollar to close at 101.7 shillings from 101.8 shillings recorded the previous week.

The marginal rise of the local currency was attributed to diaspora remittances which helped to meet increased dollar demand from merchandise importers.

On a YTD basis, the shilling has appreciated by 0.1 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,” says Cytonn Investments.

The shilling is still enjoying the narrowing of the current account deficit. Preliminary data indicate that Kenya’s current account deficit improved by 11.8 percent during Q2’2019.

The deficit came 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.

There is an improving diaspora remittance, which has increased cumulatively by 7.0 percent in the 12-months to October 2019 to USD 2.8 billion, from USD 2.6 billion recorded in a similar period of review in 2018.

The shilling is also enjoying the foreign capital inflows, with investors looking to participate in the equities market. The CBK has remained supportive of its activities in the money market, such as repurchase agreements and selling of dollars.

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.

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