Kenyan Shilling Slightly Dips But Still Resilient Against The Dollar

The Kenya Shilling depreciated by 0.7 percent against the US Dollar during the week to 101.3 shillings from 100.6 shillings recorded last week.

According to a report by Cytonn Investments, the slight depreciation by the local currency was as a result of increased end-month dollar demand from multinational companies and merchandise importers.

On a YTD basis, the shilling has appreciated by 0.1 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 the report.

The shilling is being supported by the narrowing of the current account deficit, with preliminary data indicating that Kenya’s current account deficit was equivalent to 4.6 percent of GDP in 2019, from 5.0 percent recorded in 2018.

This was mainly driven by lower imports of SGR-related equipment, resilient diaspora remittances which cumulatively stood at USD 2.8 bn in December 2019, a 3.7 percent increase from the USD 2.7 billion recorded in December 2018.

The narrowing deficit is also as a result of strong receipts from transport and tourism services with preliminary data indicating that the number of tourists landing in the country stood at 132,019 in the month of December 2019, which was a 9.0 percent increase compared to the 121,070 recorded in November 2019,

There are high levels of forex reserves, currently at USD 8.5 billion (equivalent to 5.2-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.

The country continues to experience foreign capital inflows, with investors looking to participate in the domestic 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.

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

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