Shilling Sheds 0.1% As Liquidity Remain Relatively Stable

During the week, the Kenyan shilling marginally depreciated against the US dollar by 0.1 percent to 108.9 shillings from 108.8 shillings mainly attributable to the dollar importer demand being matched by supply.

On a YTD basis, the shilling has depreciated by 7.4 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

The shilling will receive support from the Forex reserves which are currently at USD 8.1 billion which is 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.

There is an improving current account position which has seen a 39.9 percent decline during Q2’2020, coming in at Kshs 82.2 billion, from 136.9 billion shillings in Q2’2019, equivalent to 7.0percent of GDP from the 10.9% of GDP recorded in Q2’2019.

Liquidity

The money markets were relatively liquid during the week, supported by government payments, which partly offset tax receipts.

However, the average interbank rate increasing to 3.3 percent from the 3.0 percent, and the interbank volumes decreased to 7.0 billion shillings from 13.1 billion shillings recorded the previous week.

According to the Central Bank of Kenya’s weekly bulletin, commercial banks’ excess reserves came in at 10.5 billion shillings in relation to the 4.25 percent Cash Reserve Ratio.

Eurobonds

Last week, the yields on all Eurobonds declined to point to improved investor sentiment and perception of decreased risk on the country’s outlook driven by the improvement in the PMI ratings which increased to 59.1 from 56.3, pointing out to an improving business environment.

According to Reuters, the yield on the 10-year Eurobond issued in June 2014 declined by 0.4 percentage points to 4.7 percent, from 5.1percent recorded the previous week.

During the week, the yields on the 10-year and 30-year Eurobonds both declined by 0.4 percentage points and 0.3 percentage points to close at 6.1 and 7.7 percent respectively.

The yields on the 2019 dual-tranche Eurobonds issue declined. The 7-years Eurobond declined to 5.4 percent, from 6.1 percent the previous week, while the 12-year Eurobond declined to close at 6.9 percent, from the 7.3 percent recorded the previous week.