Shilling now rallies to an 8-month high

The new Kenya bank notes in circulation on June 28. AFP PHOTO | NMG 

By CHARLES MWANIKI
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Summary

• Commercial banks exchanged the shilling in the interbank market at 100.60/80 to the dollar in Friday’s trading, or an average of 100.70, the lowest rate since early April.

The shilling has strengthened to an eight-month high against the dollar, boosted by remittances from Kenyans abroad amid lower dollar demand by importers ahead of the festive period.

Commercial banks exchanged the shilling in the interbank market at 100.60/80 to the dollar in Friday’s trading, or an average of 100.70, the lowest rate since early April.

The shilling had opened the week trading at 101.67 to the dollar and went below the 101 level for the first time since the first week of May on Wednesday before making further gains at the end of the week.

Central Bank of Kenya (CBK) in the meantime cited a square market in sitting out the market on Thursday and Friday, indicating that the latest round of gains has not been driven by liquidity issues.

Traders said the demand for dollars from importers has waned as most businesses break for the Christmas period, with traded volumes also starting to go down. 

At the same time, many Kenyans abroad are sending money home to relatives for the festivities, and also in preparation for the return to school in January.

December has traditionally seen the highest volumes of remittances over the years, save for 2018 and 2019 when June has seen a spike due to the tax amnesty deadlines on those repatriating assets stashed abroad.

Underlying market conditions have favoured the strengthening of the shilling, especially the narrowing current account deficit to 4.1 percent in the 12-months to October from five percent in December 2018 due to lower imports.

In the November market perceptions survey, banks and businesses told the CBK they expected the shilling to strengthen in the run-up to the end of the year, citing adequate forex reserves at CBK, strong diaspora remittances, the resilient performance of exports and reduced demand for imports.

In September only 12 per cent of lenders predicted that the shilling would strengthen but in November, 40.5 per cent were convinced of a stronger shilling.