Businesses see shilling staying stable in the first half
Central Bank of Kenya building in Nairobi. Businesses expect the local currency to remain fairly stable in the first half of 2016. PHOTO | FILE
What you need to know:
Concern over the shilling’s exchange rate to the dollar has eased among Kenya’s businesses, which expect the currency to remain fairly stable in the first half of 2016.
The stable rate (which reduces import cost fluctuations) will be a relief to businesses, which have also been strained in the past few months by higher financing costs and reduced availability of credit.
The surveyed companies reported that they increased production in December in response to higher orders over the Christmas period from both the domestic and export market. Employment also rose to its highest level since June, according to the report.
Concern over the shilling’s exchange rate to the dollar has eased among Kenya’s businesses, which expect the currency to remain fairly stable in the first half of 2016.
The Standard Chartered-MNI Business Sentiment Indicator (BSI) survey for December shows that businesses are starting to enjoy the benefits of the shilling’s recent stability after a volatile third quarter where the exchange rate dropped to 106 units to the dollar, hitting importers hard.
The stable rate (which reduces import cost fluctuations) will be a relief to businesses, which have also been strained in the past few months by higher financing costs and reduced availability of credit.
“Kenyan businesses began to see some positive impact from recent exchange rate stabilisation. They expect the exchange rate to be less of a concern in the first few months of 2016,” said Standard Chartered economist Sarah Baynton-Glen in the report.
The BSI, which measures business confidence, rose 6.1 per cent month-on-month in December to 63.1 from 59.5 in November, attributed to a rise in business activity over the festive period.
The indicators index had come down 34.6 per cent month-on-month in November due to concerns over interest rates, which had touched highs of 23 per cent for benchmark short-term Treasury bills.
The surveyed companies reported that they increased production in December in response to higher orders over the Christmas period from both the domestic and export market.
Employment also rose to its highest level since June, according to the report.
The findings mirror those of the CfC Stanbic’s Purchasing Managers Index (PMI) survey released on Wednesday, which found that in December businesses enjoyed their fastest rate of growth in seven months.
The PMI report noted that businesses also enjoyed lower purchasing prices for inputs, lowering cost pressures and in turn were able to hire more people as they opened new branches and raised salaries at the highest rate in four months.
While companies are positive about the exchange rate, they are more cautious about the near-term outlook on interest rates, Ms Baynton-Glen says.
The businesses said interest rates are likely to remain high, with CBK expected to retain a tight monetary policy. They also expect availability of credit to fall in the near term.
Growth momentum
“This is in line with our own view that 2016 is likely to be a year of two halves for Kenya, with slower growth in the first half likely to give way to stronger growth in half two,” said Ms Baynton-Glen.
“Our forecast that growth momentum for 2016 as a whole will be stronger than 2015 should be a positive for business sentiment in the coming months; however, we think any escalation of security-related risks would be a key risk to business sentiment in 2016,” she added.
As a result of the higher financing costs, the companies forecast their financial performance will deteriorate in the short term, continuing the trend seen in 2015 that resulted in a record 17 profit warnings.
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