Shilling weathers turbulent year for African currencies

The currency has had a bumpy ride this year marked by uncertain political environment. FILE PHOTO | NMG  

By KEVIN MWANZA

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Summary

• The shilling has been relatively stable this year, trading in the 102.50-104.00 band against the dollar, supported by the CBK open market operations.
• The currency has had a bumpy ride this year marked by uncertain political environment that saw prolonged electioneering.
• Analysts expect the central bank to continue supporting the shilling from any shocks, with increased hard currency inflows from Kenyans living abroad, rebounds in tourism and agricultural as the economy recovers, acting as a cushion.

The shilling could be out of the woods after a tough 2017 that saw the central bank come in heavily to support it against drought and a prolonged electioneering period that hurt economic growth.

With local risks subsiding, analysts have cautioned that external shocks in rising global oil prices and a stronger dollar, could weigh on the currency next year. This could force the central bank to remain vigilant, as it has been this year.

The shilling has been relatively stable this year, trading in the 102.50-104.00 band against the dollar, supported by the Central Bank of Kenya (CBK) open market operations that included mopping up liquidity via repurchase agreements and selling dollars directly to commercial banks to limit shilling’s liquidity.

“Our currency has been cushioned by the regulator because at some point the dollar demand had threatened to go beyond Sh104,” said a trader at one commercial bank.

“We are looking at a spike in dollar-denominated assets next year, which will of course take the dollar with it. As a result the shilling is expected to suffer,” he added.

READ: Shilling toughens against dollar as investor activity normalises

The currency has had a bumpy ride this year marked by uncertain political environment that saw prolonged electioneering.

Analysts expect the central bank to continue supporting the shilling from any shocks, with increased hard currency inflows from Kenyans living abroad, rebounds in tourism and agricultural as the economy recovers, acting as a cushion.

Aly-Khan Satchu, an independent analyst and CEO Rich Management, said the political risk had been discounted after presidential inauguration. “The biggest risk I see for the shilling is a further rally in the crude oil price,” he said.

Kenya, whose oil import bill hit a three-year high in August, is a net importer and a rise in crude prices on the international market has big effect on consumer prices locally.