Shilling To Have Christmas Smiling As It Blooms Against The Dollar

Last week, the Kenya Shilling appreciated by 0.9 percent against the US Dollar to close at 100.7 shillings from 101.7 shillings recorded the previous week.

The continuous appreciation of the local currency has mostly been 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,” sais experts from Cytonn Investments.

The narrowing of the current account deficit will continue to protect the shilling. Preliminary data indicate that Kenya’s current account deficit improved by 11.8 percent during Q2’2019.

The country now has 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 bn, from USD 2.6 bn recorded in a similar period of review in 2018.

Foreign capital inflows are on the rise 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.

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.