Shilling Sheds Off 0.4% In February But Still Resilient

The Kenyan Shilling depreciated by 0.4 percent against the US Dollar during the month of February to Kshs 101.0, from 100.6 shillings at the end of January, attributable to US Dollar inflows from tourism and diaspora remittances.

During the week, the Kenya Shilling appreciated against the US Dollar by 0.3 percent to close at 101.0 shillings from 101.3 shillings recorded in the previous week.

The appreciation was mostly supported by inflows from offshore investors buying government debt, which mitigated the cyclical effects of heightened end month dollar demand from oil and merchandise importers meeting their end month obligations.

On a YTD basis, the shilling has appreciated by 0.3 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 percent depreciation by the end of 2020,” said Cytonn Investments.

The shilling continues to be 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 billion in December 2019, a 3.7 percent increase from the USD 2.7 billion recorded in December 2018.

There are also 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 from the 121,070 recorded in November 2019.

There are high levels of forex reserves, currently at USD 8.4 billion (equivalent to 5.1-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,

Kenya continues to witness 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.

“We, however, expect pressure on the Kenya Shilling to arise from 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 billion from USD 2.7 billion in 2018,” said Cytonn.

READ: Kenyan Shilling Slightly Dips But Still Resilient Against The Dollar