During the week, the Kenya Shilling appreciated by 0.6 percent against the US Dollar to close at 101.0 shillings from 101.6 shillings recorded the previous week.
According to Cytonn Investments, the slight appreciation was mostly supported by inflows from tourism and diaspora remittances amid slow demand from importers.
On a YTD basis, the shilling has appreciated by 0.4 percent against the dollar, in comparison to the 0.5 percent 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% depreciation by the end of 2020,” said Cytonn in their weekly report.
The shilling continues to enjoy the narrowing of the current account deficit, with preliminary data indicating that Kenya’s current account deficit in Q3’2018 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.
Kenya is also experiencing foreign capital inflows, with investors looking to participate in the equities market with the CBK remaining supportive activities in the money market, such as repurchase agreements and selling of dollars.
The shilling is likely to receive pressure on 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, from USD 65.5 a barrel in December 2019.
The shilling is also likely to feel the heat from the 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 a marginal 5.0 percent in the 12-months to November 2019 to USD 2.8 bn, from USD 2.7 bn.