Uncertainty surrounding elections and runaway government spending are
seen as the two main factors that will exert pressure on East African
currencies despite the previously low oil prices. TEA GRAPHIC | FILE
By ALLAN OLINGO
In Summary
- Citi Bank forecasts that the Kenyan unit will close the year at 107.5, the Ugandan unit at 3,615 and the Tanzanian unit at 2,315 to the dollar.
- Focus Economics analysts (includes analysis from Standard Chartered, Oxford Economics and the Economic Intelligence Unit) predicted that the Kenyan unit will close at 108.6 units to the dollar, the Ugandan unit at 3,586, and the Tanzanian currency at 2,265 units to the dollar.
- Uganda and Tanzania, which recently held elections, saw their currencies lose further ground against the greenback in the run-up to the polls.
Uncertainty surrounding elections and runaway government
spending are seen as the two main factors that will exert pressure on
East African currencies despite the previously low oil prices.
According to projections from seven analysts, the Kenya shilling
could slip below the low of 107 units to the dollar reached in 2011 to
the 108 mark by the end of the year — a sharp variance from the Central
Bank of Kenya’s expectation of the currency strengthening to 98.
Citi Bank forecasts that the Kenyan unit will close the year at
107.5, the Ugandan unit at 3,615 and the Tanzanian unit at 2,315 to the
dollar.
Focus Economics analysts (includes analysis from Standard
Chartered, Oxford Economics and the Economic Intelligence Unit)
predicted that the Kenyan unit will close at 108.6 units to the dollar,
the Ugandan unit at 3,586, and the Tanzanian currency at 2,265 units to
the dollar.
Uganda and Tanzania, which recently held elections, saw their
currencies lose further ground against the greenback in the run-up to
the polls.
During the official campaigns and election period, data from
Bloomberg Index shows, the Tanzanian currency fell by 9.4 per cent from a
high of 1,980 units in July, when the campaigns were starting, to a low
of 2,200 units to the dollar during the election period in October last
year.
In Uganda, the shilling lost 4.4 per cent from a high of 3,300
units to the dollar at the start of campaigns in November last year to a
low of 3,440 units in early February, days before the elections.
Britam Asset Managers project that the Kenya shilling will
remain stable over the first half of the year, gradually weakening to
Ksh108 to the dollar, as the current account remains in deficit despite
recent improvement.
Exposure
Kenneth Kaniu, the firm’s chief executive officer, said
increased foreign borrowing — which rose from 23.5 per cent of GDP to
last year’s 28.5 per cent — left Kenya badly exposed to external shocks
associated with global interest and currency volatility.
“We expect the shilling to exhibit more gradual depreciation in
2016 as global dollar strengthening ease and the current account deficit
narrows. It should trade between 102 units and 108 units in 2016,” said
Mr Kaniu.
Citi Bank head of research David Cowan also said that investors
are interested in exchange rate predictability and not nominal stability
adding that the weaker Kenyan shilling, the rise in inflation and the
tight monetary policy had probably suppressed consumer demand in 2015,
even if there was some benefit from lower oil prices.
“An easing of inflation in 2016 should allow some recovery,
especially if the benefits of the lower oil price start to feed into
consumption behaviour. The borrowing costs have changed significantly,
notably Eurobond interest rates, and if there is no change in fiscal
policy, the Kenyan shilling may well continue to come under pressure,”
said Mr Cowan.
Mid last month, Kenya’s Central Bank Governor Patrick Njoroge
said the shilling was closer to reflecting the economy’s fundamentals.
Insiders said the regulator expects the shilling to settle below 100, at
98.
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