The Kenya Shilling appreciated by 0.1 percent against the US Dollar during the week to 100.4 shillings from 100.6 shillings recorded last week.
According to Cytonn Investments, the slight appreciation by the local currency was mostly supported by inflows from diaspora remittances and offshore investors buying government debt exceeding the dollar demand from importers.
On a YTD basis, the shilling has appreciated by 0.7 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 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 billion in December 2019, a 3.7 percent increase from the USD 2.7 billion recorded in December.
The drop in the current deficit is also as a result of a strong receipt 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, 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.
Foreign capital inflows have been on the rise with investors looking to participate in the domestic equities market. The Central Bank of Kenya (CBK) has remained supportive activities in the money market, such as repurchase agreements and selling of dollars.
The shilling is likely to receive pressure on 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 3.7 percent in the 12-months to December 2019 to USD 2.8 bn, from USD 2.7 bn in 2018.
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