Shilling hits 33-month high on export, investor inflows

The shilling is likely to remain firm against the dollar this year, supported by the narrowing current account deficit. file photo | nmg 

By BRIAN NGUGI

More by this Author

Summary

• The shilling touched 99.95 to the dollar in early trading, Reuters data showed, the first time it has risen to that level since July 8, 2015.
• It remains to be seen whether the gains will hold, but a stronger shilling should ease exchange rate costs for importers and filter down in the form of lower cost of goods for consumers.

The shilling touched a 33-month high to the dollar on Friday as investor portfolio inflows coupled with exporter inflows offset corporate demand for the greenback.
The shilling touched 99.95 to the dollar in early trading, Reuters data showed, the first time it has risen to that level since July 8, 2015.
The strengthening compared favourably against Thursday’s close of 100.35/55.

It remains to be seen whether the gains will hold, but a stronger shilling should ease exchange rate costs for importers and filter down in the form of lower cost of goods for consumers.

Exporters could on the other hand feel the pinch as their dollar earnings translate into fewer shillings on conversion.

Analysts at Citi had earlier said the Kenya shilling is likely to retain its recent stability against the dollar this year, supported by the narrowing current account deficit and strong capital flows into the country.

The shilling was stable throughout last year against the dollar, largely helped by record inflows from Kenyans abroad and interventions by the Central Bank of Kenya (CBK) amid fears on impact of elections on the economy.

“Despite the political and policy uncertainty seen in 2017, with robust foreign exchange reserves, a narrowing current account deficit and strong capital flows into Kenya, notably from the region, the Kenyan shilling has shown significant stability,” said Citi in a recent research note.

READ: Kenya shilling hits strongest level in nearly two years

“This is unlikely to change in 2018 unless there is a more aggressive pick-up in inflation and deterioration in the fiscal position.”

The shilling kicked off with a turbulent note at the start of 2017, slipping to a 15-month low against the dollar within the first week, but it later stabilised as political temperatures around the presidential election fell.

Citi said although food price inflation was erratic last year, making inflation forecasting more complicated, the inflation rate would remain within the CBK target band early this year.

Remittances by Kenyans living abroad jumped by nearly one-half in February to hit a new monthly high of Sh21.25 billion ($210.36 million), driven by increased inflows from the US.

READ: Kenya remittances jump by nearly half in Feb to hit Sh21bn

Fresh data from the Central Bank of Kenya (CBK) shows the cash rose 47.45 per cent compared to Sh14.41 billion ($142.665 million) a year earlier, a new record set for the third month in a row.

Diaspora inflows in February were slightly higher than Sh21.10 billion ($208.92 million) in January and Sh20.59 billion ($203.82 million in December, which were both historic highs.