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Shilling Still Shining But Pressure Expected From US-Iran Tension

BY Juma · February 3, 2020 09:02 am

The Kenya Shilling appreciated by 0.7 percent against the US Dollar during the month of January to 100.6 shillings from 101.3 shillings at the end of December.

The marginal appreciation of the local currency during the month of January according to Cytonn Investments was mostly supported by inflows from tourism and diaspora remittances amid slow demand from importers.

During the week, the Kenya Shilling appreciated against the US Dollar by 0.3 percent to close at 100.6 shillings from 100.9 shillings recorded in the previous week.

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.

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. This was 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, 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 shilling continues to be shielded by 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 likely to experience pressure from the 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 likely to be a subdued diaspora remittances growth following the close of the 10.0% tax amnesty window in July, which has seen cumulative diaspora remittances increase by 3.7% in the 12-months to December 2019 to USD 2.8 billion from USD 2.7 billion in 2018.

READ: Shilling Still On A Upward Trajectory Against The Dollar

Juma is an enthusiastic journalist who believes that journalism has power to change the world either negatively or positively depending on how one uses it.(020) 528 0222 or Email: info@sokodirectory.com

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