Kenyan Shilling Appreciates Marginally Against The Dollar

Last week, the Kenya Shilling appreciated marginally by 0.1 percent against the US Dollar to close at 100.9 shillings from 101.0 shillings recorded the previous week.

The slight appreciation of the local currency, according to Cytonn Investments, was mostly supported by dollar inflows from horticulture exports and offshore investors buying government debt.

On a YTD basis, the shilling has appreciated by 0.4% against the dollar, in comparison to the 0.5% appreciation in 2019.

“In our view, the shilling should remain relatively stable against the dollar in the short term, with a bias to a 2.4 percent depreciation by the end of 2020,” said Cytonn Investments.

The shilling continues to enjoy the narrowing of the current account deficit, with preliminary data indicating that Kenya’s current account deficit in Q3’2019 was equivalent to 8.2 percent of GDP, from 9.3 percent recorded in Q3’2018.

This was mainly driven by the narrowing of the country’s merchandise trade deficit balance (a scenario where imports are greater than exports) by 6.7 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 4.3 percent.

Foreign capital inflows, with investors looking to participate in the domestic equities market continue to boost and shield the local currency with the CBK remaining supportive activities in the money market, such as repurchase agreements and selling of dollars.

The shilling will receive some pressure from increased oil imports bill, as a result of the U.S – Iran diplomatic row, which has seen average crude oil prices increase by 9.9 percent to an eight-month high to USD 72.0 a barrel in Jan 2020, from USD 65.5 a barrel in December 2019.

There is a subdued diaspora remittances growth following the close of the 10.0 percent tax amnesty window in July, which has seen cumulative diaspora remittances increase by 3.7 percent in the 12-months to December 2019 to USD 2.8 bn, from USD 2.7 bn in 2018.

READ: Shilling Sails Through 2019, Outsmarting The Dollar By 0.5%