Kenyan currency. CBK has been assuring the market that it is closely monitoring the currency. Photo/FILE
What you need to know:
47 per cent of managers expected currency to appreciate and 36pc see it losing value.
A stronger currency is in part good for the Kenya market which is a net importer.
On Monday, the shilling was unmoved trading at 87.50 to the dollar, roughly the same rate it has exchanged for in weeks.
Most bankers expect the shilling to strengthen in the next five months in spite of poor performance by traditional foreign exchange earners, underlining the positivity injected by the success of sovereign bond.
A survey by the Central Bank of Kenya found that 47 per cent of bank managers expected the shilling to appreciate compared with 36 per cent who anticipate it will lose value.
“The June 2014 Survey shows banks and non-bank firms expect the exchange rate to either strengthen or remain stable in the remainder of 2014,” said CBK in its bi-monthly market survey.
The lender’s expectations were anchored on inflows from the sovereign bond expected to boost the country’s foreign exchange reserve, sustained inflow of cash from Kenyans in the diaspora, and increased foreign direct investment in infrastructure and energy.
A stronger currency is in part good for the Kenya market which is a net importer.
On Monday, the shilling was unmoved trading at 87.50 to the dollar, roughly the same rate it has exchanged for in weeks.
The optimism is in spite of security concerns which have crippled the country’s tourism sector and a decline in tea prices that has hurt inflows from the key cash crop.
“We remain sanguine on the local unit’s prospects going forward, informed by positive sentiments emanating from global markets on the success of the recently issued Eurobond. We expect the shilling to exchange in the 87 to 89 range to the greenback for the remainder of the calendar year,” said research firm Stratlink Africa.
CBK, which has been holding foreign currencies totalling more than four months of the country’s monthly import bill, has been assuring the market that it is closely monitoring the currency.
Last week, CBK increased its foreign currency reserves by $364 million (Sh31.8 billion), which the bank said was not inclusive of proceeds from the sovereign bond. The country raised $2 billion through the sovereign bond sold late last month.
“I see it gaining because with its current holding CBK will not be vying for dollars in the market to settle its bills and people will not try to speculate,” said Family Bank treasury manager Joseph Gathege.
The Treasury has also been vocal in its search for a precautionary debt facility from the IMF. The debt is to be put on call for the government to use to support the domestic currency in case it comes under pressure like witnessed in 2011.
Currency shocks
The IMF team visited the country last week to discuss the next round of financing. The Treasury wants to keep the IMF money in the General Reserve Account, from where it can be drawn in the event of short-term balance of payment shocks.
The account has been used by countries like Zimbabwe to deal with currency shocks. Widening deficit between the country’s imports and exports is one such major source of concern.
According to the Kenya National Bureau of Statistics (KNBS), the gap hit Sh100 billion in March putting pressure on the shilling which has had to be propped up through open markets operation of CBK.
The imbalance is expected to be accelerated further by food imports after poor harvest. The government has already given a greenlight for importation of 200,000 tonnes of maize from Tanzania. Wheat growers have also raised an alert over an expected poor harvest.
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