The Kenyan shilling has continued to shame the naysayers as it continues to hold ground against the US Dollar.
Last week, the Kenya Shilling appreciated by 1.0 percent against the US Dollar to close at 101.8 shillings from 102.8 shillings recorded the previous week.
According to Cytonn Investments, the local currency was supported by hard currency inflows from offshore investors buying government debt amid tight local currency liquidity conditions.
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 in their report for the week.
The shilling has continued to enjoy the narrowing of the current account deficit.
Preliminary data indicates 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% 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 are improved diaspora remittances, which have increased cumulatively by 7.0 percent in the 12-months to October 2019 to USD 2.8 bn, from USD 2.6 bn recorded in a similar period of review in 2018,
The shilling has also continued to enjoy the foreign capital inflows, with investors looking to participate in the equities market.
The Central Bank of Kenya, of late, has remained supportive, with 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 bn (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.